Bitcoin has experienced significant fluctuations in value due to recent tariff announcements by former President Donald Trump. The economic uncertainty surrounding these tariffs has influenced investor behavior, leading to notable sell-offs and a decline in Bitcoin’s price.
Impact of Tariff Announcements
Following Trump’s threats to impose tariffs on major trading partners, Bitcoin’s value dropped over 15% since February 3. This decline was exacerbated by a withdrawal of over $3.50 billion from U.S.-based Spot Bitcoin exchange-traded funds (ETFs) as investors reacted to the potential economic fallout.
The imposition of tariffs, including 25% on Canada and Mexico and 10% on China, has raised concerns about supply chain disruptions and inflation. As a result, investor risk appetite has diminished, leading to fears of a “Trumpcession,” which reflects anxieties about economic downturns associated with trade wars.
Bitcoin’s Correlation with Traditional Markets
Historically, risk assets tend to decline during periods of economic uncertainty. While Bitcoin has previously been viewed as a safe haven during trade tensions, its current behavior aligns more closely with traditional risk assets. The correlation between Bitcoin and the Nasdaq has reached a notable 0.91, indicating a strong relationship that could influence Bitcoin’s performance as market sentiments fluctuate.
This correlation suggests that Bitcoin’s price movements are increasingly influenced by macroeconomic factors and geopolitical events. As traders react to news, Bitcoin’s volatility may become more pronounced, reflecting broader market dynamics.
Market Reactions and Volatility
Unlike traditional financial markets that operate on fixed hours, Bitcoin trades continuously, allowing for rapid reactions to macroeconomic developments. Following the confirmation of Trump’s tariff plans, crypto traders quickly sold off Bitcoin, resulting in a sharp price decline to a three-week low of $91,000.
This immediate response contributed to a broader crypto market loss exceeding $1 trillion from its peak in December by late February. The volatility of Bitcoin was further underscored by the market’s reaction to Trump’s announcement of a U.S. crypto strategic reserve, which led to a 9.58% surge in Bitcoin’s value—the strongest daily gain since November 2024.
Investor Behavior and Safe Havens
Typically, tariff announcements are expected to bolster the U.S. Dollar Index (DXY) by reducing imports and enhancing domestic demand. However, following the recent tariff news, the DXY peaked around the time of the announcement but subsequently declined, mirroring Bitcoin’s downward trend.
This unusual behavior indicates that investors are seeking alternative hedges against the economic implications of tariffs. The euro has gained strength since February 3, suggesting that global investors may be favoring fiat alternatives over Bitcoin as a safe haven.
Trends in Safe-Haven Assets
Additionally, gold has surged following the tariff announcements, highlighting the trend of investors seeking refuge in traditional safe-haven assets. The Japanese Yen (JPY), another perceived safe haven, has appreciated by 4.5% since the tariff threats were made.
If the tariffs lead to widespread fears of a trade war or economic slowdown, investors may withdraw from risk assets and avoid the dollar, anticipating potential negative impacts on U.S. economic growth. This environment of economic uncertainty tends to trigger immediate sell-offs in Bitcoin, as traders react to the heightened risk landscape.
Future Outlook for Bitcoin
Current market dynamics illustrate how Bitcoin’s price movements are increasingly influenced by macroeconomic factors and geopolitical events. As the cryptocurrency is viewed more as a risk asset, its correlation with traditional markets may lead to more pronounced volatility in response to news events.
While some analysts suggest that Bitcoin could benefit in the long term if inflation rises, the immediate market response remains cautious. This reflects broader anxieties regarding economic stability and trade relations, which continue to shape investor sentiment in the cryptocurrency market.
📎 Related coverage from: cointelegraph.com
