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This Is Why Donald Trump's Tariff Wars Might Be Good for Bitcoin

trump tariffs war

Donald Trump spooked the markets as he began an international tariff war, while bitcoin (BTC) and the broader cryptoasset market fell among the first victims of this political game. However, BTC market players estimate that these tariff wars will only help the price in the longer term.

This past weekend, Trump imposed tariffs on imports from Canada, Mexico, and China in an attempt to ensure "Americans’ safety and our national security first." The President also said that tariffs on EU goods will "definitely happen." Canada, Mexico, and China have already retaliated. While no one knows how long these tariff wars can last, as they might just be used as a negotiation tool, the markets turned red on fears that they could hit economies and financial markets.

Meanwhile, as BTC and crypto are the only markets open 24/7, they took the first hit this past weekend, as some investors started to position themselves ahead of the expected stock market drop on Monday. And indeed, Asian and European markets are in the red today.

Moreover, liquidations in the BTC and crypto derivatives market have sharpened the downturn as well, as overleveraged, overexposed traders who were betting on a price rise were forced to sell.

The markets are afraid that tariff wars might also increase inflation, making it more difficult for central banks to decrease interest rates, thereby dampening the prospects of risk assets such as stocks and BTC. However, Mohamed A. El-Erian, Chief Economic Advisor at Allianz, a financial services giant, stressed that tariffs might not necessarily be inflationary, as this depends on many factors.

In either case, after hovering near $105,000 on Friday, the price of BTC turned down following Trump's announcement, reaching $92,500 today. At the time of writing, the price has somewhat rebounded and is trading above $95,000.

The price of BTC in the past month:

BTC price trends
Source: Coingecko.com

Meanwhile, BTC industry players and analysts claim that this tariff war might help BTC’s price.

André Dragosch, European Head of Research at cryptoasset investment company Bitwise, noted that while BTC might still suffer in the short term due to a stronger dollar and tightening financial conditions, in the long term, the US Federal Reserve is likely to be forced to cut rates more aggressively to stem the dollar's ascent.

Additionally, Jeff Park, Head of Alpha Strategies at Bitwise, said that "the US is charting a path to achieve the holy grail of fiat alchemy: a lower dollar and lower yield" on US 10-year Treasuries.

"The asset to own, therefore, is Bitcoin. In a world of a weaker dollar and weaker US rates—something broken pundits will tell you is impossible (because they can't model statecraft)—risk assets in the US will fly through the roof beyond your wildest imagination, for it is likely a giant tax cut will have to accompany the higher costs borne by the loss of comparative advantage," Park concluded.

However, despite this optimism, some traders even estimate that the price of BTC might dive toward $75,000 in the short term. Whether any of these two scenarios—or both—will materialize remains to be seen.

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