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Financial markets experienced significant volatility following President Trump’s so-called “Liberation Day” announcements, with approximately £2 trillion in value erased from global stocks. Investor apprehension gripped London, European, Asian, and Wall Street markets. This turmoil extended into the week, exemplified by the FTSE 100’s initial 6% decline on Monday after President Trump characterized his tariffs as “medicine.” Concerns are mounting that these substantial tariffs imposed on international trading partners could impede business operations abroad, potentially triggering a global economic downturn.
Crypto Market Response to Tariffs
Despite the intertwined nature of cryptocurrency fortunes and tariff impacts, analysts suggest reduced anxiety surrounding digital currencies compared to foreign enterprises directly affected by these levies. While certain digital currencies, like Bitcoin, have demonstrated resilience, others, such as Dogecoin, have experienced sharp declines. This raises questions about the anticipated effects of tariffs on the crypto market and optimal investment strategies.
Investor Sentiment and Market Dynamics
In March, President Trump declared the establishment of a US crypto reserve, surprisingly encompassing alternatives to Bitcoin, including Ethereum, Solana, Cardano, and XRP. His social media proclamation, “I will make sure the US is the Crypto Capital of the World,” lacked specific details. However, recent analysis indicates that escalating recession anxieties are affecting cryptocurrency holders, prompting many to liquidate their digital assets. This sell-off is contributing to the depreciation of digital currency valuations.
Chris Beauchamp, a cryptocurrency analyst at IG Markets, explains, “Stock markets are faltering as investors curtail risk exposure in anticipation of adverse conditions. Similarly, crypto investors are seeking to mitigate market collapse risks by converting digital currencies to cash, ensuring liquidity for essential expenses.”
Cryptocurrency valuation is dollar-denominated, thus a weakening dollar, observed since the tariff pronouncements, elevates digital currency costs for non-US residents.
Beauchamp further notes, “The election of President Trump triggered a wave of crypto market exuberance. These tariff declarations serve as a reality check for some, particularly amid trade war indicators, highlighted by China’s retaliatory tariff threats on American goods. Suspicion surrounding the nexus between Trump and crypto is also prompting some investors to withdraw from the market.”
Market Crossroads and Investment Strategy
The market instability initiated by tariff announcements is expected to subside. Crypto experts advise patience, suggesting observation of market trends over the coming days before enacting significant investment changes. Glen Goodman, author of “The Crypto Trader,” posits, “We are at a pivotal moment, not only for crypto but also for stocks and shares. The prevailing market apprehension might be exaggerated. President Trump’s tariff threats could be a negotiating tactic to secure improved trade agreements for US businesses, potentially leading to tariff撤回.”
Goodman attributes the recent downturn in cryptocurrencies to institutional investors categorizing digital assets within the technology sector, anticipated to suffer from tariff-induced price increases on technology imports from nations like China and India.
China faces a 34% tariff, India 26%, and EU members 20% on goods entering the US. The UK confronts a 10% tariff rate for exporters. Elevated customs duties are scheduled to take effect from Wednesday, April 9.
Potential Opportunities in Crypto
While cryptocurrency fortunes are intertwined with tariffs, Goodman suggests this period may present a buying opportunity rather than necessitating a sell-off of digital currencies like Bitcoin once the initial market shock diminishes. He states, “Extensive discussion among crypto traders on social media indicates a focus on optimal buying times, rather than selling.”
Beauchamp cautions, “The cryptocurrency market is inherently volatile. Individuals interested in crypto investment should initially allocate small, incremental amounts to gain a better understanding of market dynamics, especially during periods of uncertainty.”
Bitcoin’s Market Position
Bitcoin, the leading digital currency, experienced a price decline of over 7%, from approximately $87,870 on Wednesday evening to $81,302 on Thursday. After a slight rebound, it descended further to $76,515 on Monday, representing a weekly decrease of about 6% – considerably below its year-start peak exceeding $100,000.
Analyzing the performance of the “magnificent seven” tech stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) over three weeks, Goodman notes a combined value depreciation exceeding 6%. Conversely, Bitcoin’s valuation shifted from approximately $77,000 to $76,515 during the same timeframe, demonstrating relative stability despite post-tariff announcement declines.
Goodman concludes, “Data indicates investors exhibit greater concern regarding the trajectory of major tech corporations than the future of Bitcoin.”
Tariffs on China may also inflate Bitcoin mining expenses, potentially sustaining higher digital currency valuations. Bitcoin mining employs sophisticated computers solving complex algorithms. Some mining hardware is manufactured in China. The Bitcoin supply is capped at 21 million, with approximately 20 million currently mined.
Long-term holders possess three-quarters of the existing 20 million Bitcoins. Beauchamp explains, “This cohort, known as ‘hodlers,’ exhibit resilience during market downturns, with long-term gains outweighing short-term anxieties. Tariff increases are unlikely to alter their investment approach.”
Cryptocurrencies Facing Greater Risk
In the seven days preceding Monday, April 7, Bitcoin’s price decreased by roughly 6%. Concurrently, Ethereum plummeted 16%, XRP declined 13%, Solana dropped 18%, and Dogecoin fell 14%, according to CoinMarketCap.
Experts attribute the more pronounced decline in alternative cryptocurrencies to tariffs diminishing the overall attractiveness of digital assets. Bitcoin’s established market presence renders it comparatively less susceptible.
Dogecoin, endorsed by Elon Musk, who, despite lacking formal affiliation, publicly championed it, exemplifies cryptocurrencies with presidential connections. A 2019 tweet from Musk stating “Dogecoin might be my fav cryptocurrency. It’s pretty cool,” doubled its value. Musk, a known Trump supporter, also served as a ‘special government employee’ focused on bureaucratic streamlining utilizing a DOGE taskforce. Concerns surrounding their relationship and potential strain post-tariff announcements exist.
Regarding current investment strategies, Goodman states, “For me, it’s business as usual. Cryptocurrency price volatility is inherent. Tariff announcements do not warrant selling; I will continue trading as before.”