Trade War Returns: Bitcoin Faces $100K Test as Tariffs Bite

The confirmation of renewed trade hostilities between the United States and China has created a toxic environment for risk assets, with Bitcoin suffering immediate collateral damage. President Donald Trump’s declaration of 100% tariffs on Chinese imports has triggered a flight to safety among institutional investors, who are rapidly shifting toward defensive positions in gold, Treasury bills, and short-duration bonds. This risk-off sentiment has proven particularly damaging for Bitcoin, which continues to trade as a high-beta macro asset despite its maturation as a regulated asset class.

According to data from CoinGlass, the cryptocurrency market experienced approximately $20 billion in open interest liquidations within 24 hours of the tariff announcement, with Bitcoin and Ethereum leading the decline. The timing compounds existing market weakness, extending what analysts had already characterized as a rare “red October” for digital assets. The pattern mirrors the 2018 trade war episode, when similar tariff announcements triggered volatility that pushed Bitcoin below $6,000, suggesting historical precedents remain relevant despite Bitcoin’s evolution.

James Butterfill, head of research at CoinShares, had warned in February that tariffs would be “undeniably negative” for Bitcoin in the short term. His analysis proved prescient: tariffs function as stealth taxes that raise import costs, stoke inflation, and pressure central banks to maintain higher interest rates for longer. This combination drains liquidity from speculative assets, creating headwinds that challenge Bitcoin’s recent bull market momentum.

The immediate market reaction reflects growing pessimism about Bitcoin’s near-term prospects. On prediction market Polymarket, the probability of Bitcoin reaching $130,000 by month-end has fallen below the likelihood of it retreating to $95,000. This sentiment shift underscores how macro policy developments are increasingly dictating digital asset pricing, with traders anticipating continued volatility as the trade war escalates.

Analysts at Bitunix told CryptoSlate that Trump’s confirmation has reshaped global risk appetite through a dual mechanism: short-term liquidity shocks followed by potential medium-term structural changes in how capital views decentralized assets. The immediate effect has been a classic de-risking cycle, where heightened uncertainty drives institutions toward cash equivalents and gold, sparking broad sell-offs in high-liquidity markets like cryptocurrency.

This liquidation cascade was accelerated by leveraged traders facing margin calls, creating the conditions for last week’s $20 billion market wipeout. The rapid deleveraging demonstrates how quickly sentiment can turn in crypto derivatives markets when macro shocks occur, particularly given Bitcoin’s increased integration with traditional finance through ETF exposure and regulated derivatives markets.

Despite the immediate bearish pressure, analysts identify potential structural benefits for Bitcoin if trade tensions escalate beyond tariffs into financial system restrictions. The Bitunix team explained that if the confrontation extends into financial settlement systems—potentially including US restrictions on cross-border dollar access or payment rails—investors could increasingly seek alternatives to traditional financial infrastructure.

In this scenario, digital assets might transition from “risk assets” to “alternative reserves,” with Bitcoin particularly positioned to benefit from de-dollarization narratives. “The erosion of confidence in the US dollar system could reinforce Bitcoin’s narrative as a ‘de-dollarization’ and ‘alternative value reserve’ asset, creating structural support,” the Bitunix analysts noted.

Butterfill’s analysis supports this bifurcated outlook: while tariffs create short-term headwinds, Bitcoin has historically recovered faster than equities in stagflation scenarios. “In the long term, Bitcoin’s role as a hedge could be strengthened, especially if tariff policies lead to economic instability,” he observed. This suggests that while immediate price action remains dominated by risk-off sentiment, Bitcoin’s fundamental value proposition as an uncorrelated asset could strengthen if trade tensions persist or escalate.