Could Bitcoin Serve as a Hedge Against US Tariffs?

[CharlieH]

 

If you hold a certain amount of bitcoin or whether you’re planning to buy some soon, you must be wondering what impact the US tariffs have on the coveted crypto’s price.

A market analysis by Inky Cho, Financial Markets Strategist at Exness, considers that the return of President Donald Trump to the White House arguably to mark the most schismatic moment in US politics and geopolitics.

Trump’s reappointment was followed by a deluge of draconic measures, including eerie promises of mass deportations and a series of controversial decisions emanating from Elon Musk, the head of the Department of Government Efficiency (DOGE), which has been keeping traders and investors on a string.

The pledge to impose 25% tariffs on imports from Canada and Mexico, and 20% on imported goods from China in his first 100 days in office, made Trump one of the most controversial political figures of the 21st century.

But tariffs are not the only most beautiful word in the English dictionary, according to the US President. The word cryptocurrency also carries particular significance, as he promised to enact a series of deregulation measures aimed at bolstering bitcoin and altcoins’ value.

To that end, he signed an executive order that serves as the foundation for a so-called Strategic Bitcoin Reserve and a Digital Asset Stockpile, which will include bitcoin alongside other cryptocurrencies.

The funds will be held with digital currencies forfeited to the federal government as part of legal proceedings. According to David Sacks, the White House AI and crypto czar, this reserve will be a digital Fort Knox for cryptocurrency, which he likened to the Kentucky military base that stores a significant amount of US gold assets.

Amid a wave of polarising reaction from crypto enthusiasts, some of whom criticised the government for not taking a bolder stance, while others questioned the transparency of the process.

Sacks has reportedly ordered a full account of the government’s crypto asset reserves, which he estimated at 200,000 bitcoin alone. But is that enough to turn bitcoin into a hedge? The answer to this question is more complex.

 

A tariff-led bitcoin bull run in disguise

 

The President’s relationship with the crypto space is not entirely free of any conflict of interest. The launch of his name meme-coins $TRUMP and $MELANIA just before inauguration day spited the industry, which Danny Scott, CEO of CoinCorner, retorted.

“Trump's comments about not knowing much about the coin back up my opinion that he is making a mockery of the industry. It's a stunt.”

Against this hazy background, the US tariffs cast a somewhat more positive light on the potential of bitcoin and other crypto assets. Assuming that Trump completes his tariffs mandate, immigration policies, and tax cuts, inflation could rise rapidly.

However, this type of inflation will not be a positive sign at all. For example, the cost of German motor vehicles in the US would soar, prompting Americans to open their wallets before the tariffs are enforced. This upsurge in consumer spending could temporarily drive retail sales higher, creating an artificial sense of economic growth.

The early signs of this were seen in December 2024, when the consumer price index (CPI) rose at an annual rate of 2.9%, backed by a lower core inflation. Cryptocurrencies, which unlike safe-haven gold, have a growth component that makes them inherently more sensitive to economic shifts such as inflation spikes and tariffs. And bitcoin is no exception.

Driven up by 2% as the US CPI data sent mixed inflation signals across markets, bitcoin surged US$1,500 to US$98,000 in 24 hours in December 2024.

Because of its nature, many investors and traders consider bitcoin a commodity. From this perspective, it’s worth exploring the effect of the recently implemented US tariffs on bitcoin and the broader crypto market.

 

Near-term fears and the rush for cash

 

Near-term, tariffs may hurt bitcoin’s and the crypto market’s performance, precisely because of its inherent growth-driven characteristic. This is evident in its recent price action. As fear pervades the financial markets, bitcoin hit a four-month low amid massive crypto market sell-off.

 

 

The crypto market reached a staggering US$1 billion in liquidations in the space of 24 hours (between March 10 and March 11), making many traders run for their money. Bitcoin and Ethereum, the largest cryptocurrencies by market capitalisation, have been the biggest losers of this downturn.

The main reason behind this mind-blowing price drop is the large movement of cryptocurrency by key players. Mt. Gox, the not-long-ago dominant crypto exchange, transferred tens of thousands of bitcoins as it settles debts, triggering sell-off fears.

In a chain reaction, an Ethereum whale, who’s been lying low for months, deposited a jaw-dropping amount of ETH into Kraken, adding to the jittery. Another key ETH holder sold a significant portion of its holdings at a loss, potentially to prevent forced liquidation.

Had this not been enough already, Trump’s comments of a looming recession sent shockwaves through the stock and crypto markets. Stock prices and crypto valuations took a tumble as a result, erasing the gains added after the latest US monetary policy update.

Bitcoin also tumbled to a multi-month low briefly amid fears that an impending sharp decline may be ahead, before recovering slightly. Traders must tread with caution and exercise risk management using Stop Loss as the downward trend may continue unless buying pressure returns.

This is a typical reaction to political and economic uncertainty triggered by Trump’s tariff policy. But is this all there is to bitcoin’s path ahead, or is there light at the end of the tunnel?

 

The bigger picture: Bitcoin as a US tariff hedge

 

Maintaining its correlation with the NASDAQ at a 40% rate, bitcoin is currently trading way below its 72% peak correlation point. Nevertheless, as seen during March 2023, when the banking crisis climaxed, bitcoin can uncouple and act as a safe-haven asset. This is arguably its paradox, as it can be both highly volatile and a safe haven.

In this context, bitcoin, unlike Ethereum and other altcoins, can be seen more as digital gold. This polarity across the crypto market is likely to continue, analysts suggest, with bitcoin acting more like a hedge against economic uncertainty and present-day US tariffs, while altcoins, including Ethereum, remain tied to the tech sector and implicitly, tech-heavy NASDAQ.

 

Food for thought

 

Tariffs shape economies as new trade alliances could be formed, and trade wars are likely to erupt in various parts of the world. In the short term, US tariffs could lead to higher inflation, slower growth, and volatility in bitcoin and risky assets.

In the long term, however, bitcoin’s role as a hedge against tariffs could increase, especially if tariffs trigger economic instability.

What lies ahead for bitcoin remains to be seen. Meanwhile, traders will do well to keep abreast of US policy decisions as well as global economic and political developments. This will help them make informed decisions and potentially even enjoy some of bitcoin’s potential as a hedge.

 

 

 

 

Sponsored - Original article by The Thaiger

[CallumWK]

 

[CharlieH]

With the instability due to Tarrifs etc I dont see GOLD going anywhere but UP UP UP 

[CallumWK]

4 minutes ago, CharlieH said:

With the instability due to Tarrifs etc I dont see GOLD going anywhere but UP UP UP 

 

Exactly the point of my reply, but BTC went down during the same period, so clearly no hedge