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04.02.2025 12:49 AM
Bitcoin and Trade Wars: A Disaster or a Market Opportunity?
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February started with upheaval in the crypto market as Bitcoin's value dropped significantly, leading to liquidations surpassing $2 billion, leaving investors confused. The instability was triggered by Donald Trump's announcement of new trade tariffs on goods from Canada, Mexico, and China. The question now is whether this tariff war will negatively impact cryptocurrencies or potentially ignite a new wave of growth for Bitcoin.

Why Did Bitcoin Drop After Trump's Announcements?

Following Trump's high-profile announcement of trade barriers, markets were gripped by panic. According to Coinglass, over 700,000 traders' positions were liquidated in just 24 hours, resulting in total losses for crypto investors reaching $2.2 billion.

Bitcoin fell by 6.3%, dropping back to $90,000. Altcoins experienced even steeper declines: Ethereum plunged 16.5%, while projects like Solana and XRP saw drops of 27% and 43%, respectively.

The reason for this sharp reaction is clear: the trade war heightens fears of global inflation, which adversely impacts all high-risk assets, including cryptocurrencies. As investors worry about a potential recession, they hurriedly move to cash and more conservative investments, leading to reduced liquidity in the crypto market.

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A Political Move: Weakening the Dollar Through Tariffs

Strategists on Wall Street believe that the trade war is not only a tactic for putting pressure on international partners but also a way to deliberately weaken the dollar. Jeff Park, head of strategy at Bitwise, draws a comparison to 1985, when the U.S. devalued the dollar under the Plaza Accord. He argues that the new tariffs are an effort to artificially reduce the amount of dollars circulating in the global economy. This reduction could stimulate the growth of alternative assets, such as Bitcoin.

Pak suggests, "The Trump administration is trying to simultaneously decrease the circulation of the U.S. dollar and lessen the economy's dependence on foreign investors. As a result, this could lead to increased demand for Bitcoin as a hedge against inflation." Therefore, if the dollar starts to weaken significantly, Bitcoin might emerge as the primary beneficiary of these macroeconomic changes.

Can Bitcoin Become the "New Gold"?

A weak dollar has historically led to increases in both commodity prices and gold. However, in today's digital economy, Bitcoin is increasingly being viewed as "digital gold." During times of instability, investors are considering it a hedge against currency devaluation.

The forecast for Bitcoin in this context is mixed. On one hand, the short-term outlook appears bleak due to panic selling. On the other hand, long-term trends, such as the Bitcoin halving that took place in 2024 and the declining supply of coins, could be favorable for bullish investors.

How Should Investors Navigate Uncertainty?

Experts advise against panic and suggest viewing the current market dip as an opportunity for cautious entry. Strategist Ryan MacMillan notes: "Market makers took advantage of the situation to flush out leveraged positions. Now that sell-side liquidity has dried up, the likelihood of further declines decreases."

Nick Forster, the founder of the DeFi protocol Derive, adds that the recent spike in volatility is a natural market reaction to macroeconomic changes, but it doesn't undermine Bitcoin's long-term bullish trend. He states, "We're seeing a 4% rise in Bitcoin's 30-day implied volatility, but if Trump's policy truly leads to a weaker dollar, Bitcoin will become one of the key safe-haven strategies."

Conclusion: Crisis or Entry Point?

It's too early to write off Bitcoin due to the trade war. Yes, the short-term panic has led to a significant drop, but if analysts' assumptions about dollar devaluation come true, cryptocurrencies could emerge from this crisis even stronger.

Investors should closely monitor further statements from the Trump administration and macroeconomic indicators, but it's entirely possible that the current decline will prove to be an excellent buying opportunity ahead of the next bullish cycle.

Ekaterina Kiseleva,
Analytical expert of InstaForex
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