Potential Benefits of Trump's Tariffs for Bitcoin as Market Takes a Hit
In a series of recent announcements, Donald Trump's tariffs have sent shockwaves through the global financial system, affecting not only traditional markets but also the world of cryptocurrencies.
The overall crypto market has taken a significant hit, with a loss of around $300 billion since April 4. Bitcoin, the leading cryptocurrency, has seen its price fall below $80,000, while Ethereum has dropped below $1,500. The Bitcoin Dominance Index, or the share of Bitcoin in all values in the crypto market, has risen to 62 percent.
The tariffs have also caused global stock markets to panic, with the stocks of MicroStrategy, Coinbase, and American miners seeing a decline. The total market capitalization of all cryptocurrencies has decreased as a result.
The tariffs could trigger spirals of depreciation, for example, if China offsets tariffs by depreciating the yuan. This could initiate and accelerate the de-dollarization process that countries like China, Russia, and Brazil have long desired.
Countries with significant holdings of US government debt abroad, such as Japan and China, could be prompted by Trump's tariff policies to sell parts of their US Treasury holdings. Yields on 10-year Treasury bonds have risen sharply to around 4.46 percent, and Japan's debt holdings are significant and have experienced rising interest rates, indicating vulnerability to such actions.
If these countries sell even small parts of their Treasury bonds, it could lead to the USA being effectively bankrupt and Trump's plan failing. The dollar's status as a global reserve currency is closely linked to a US trade deficit. Without it, central banks will absorb fewer dollars in the future.
However, not all sectors are suffering equally. For at least Tether, Circle, and other stablecoin issuers, the rising yields on Treasury bonds are beneficial as they mainly back their coins with Treasury bonds.
An analyst at Deutsche Bank warned that the recent price movements of stocks, bonds, and currencies indicate a simultaneous collapse in the price of all US assets, which would be a step "into unknown territory in the global financial system."
On the other hand, Matthew Sigel, analyst at Bitcoin-invested asset manager VanEck, believes that the tariffs are good for Bitcoin as they threaten to trigger monetary and fiscal fragmentation and drive demand for a neutral settlement instrument like Bitcoin. The tariffs strengthen the idea of Bitcoin as a complementary asset in a developing global economy.
In conclusion, the tariffs announced by Donald Trump have had a profound impact on both traditional and cryptocurrency markets. As the global financial landscape continues to evolve, it remains to be seen how these shifts will play out in the long term.
