Trump’s Trade War Hits Crypto Hard: Bitcoin Drops, But Can It Recover?

Donald Trump’s new tariffs have sent shockwaves through global markets, triggering a sell-off in both stocks and crypto. The U.S. president announced hefty tariffs—25% on Mexican and Canadian imports and 10% on Chinese goods—which will take effect on Monday. Investors fear these tariffs will push inflation higher, forcing the Federal Reserve to keep interest rates elevated for longer, leading to a risk-off sentiment across financial markets.

Let’s dive into the details and see what’s really at stake.

Mixed Market Reactions

Before these tariffs, Trump’s regulatory actions already caused turmoil in the markets, especially in the crypto sector. His new crypto regulations triggered a crash in both stocks and crypto. However, some experts see the tariffs as potentially positive for Bitcoin in the long run.

These tariffs could weaken the U.S. dollar and push U.S. interest rates lower, which could benefit Bitcoin and other cryptocurrencies over time.

The impact on the markets was swift and severe. Dow futures dropped 1.2% late Sunday, while S&P 500 and Nasdaq futures fell nearly 2% and 3%, respectively. Crypto markets, which operate 24/7, reacted even faster. Bitcoin dropped 5%, Ethereum fell 10%, and both Dogecoin and XRP saw sharp declines of 19%. In just 24 hours, over $2.1 billion worth of crypto positions were liquidated, with Bitcoin falling to $96,300 and Ethereum dropping to $2,800.

Is the Panic Overblown? Analysts Weigh In

Some analysts believe the panic is temporary and that markets have already priced in the worst. Ryan McMillin of Merkle Tree Capital suggested that market makers may have used the fear to liquidate leveraged positions, potentially creating a price floor for crypto. However, Nick Forster of Derive warned that volatility could persist, as inflation concerns may limit any near-term recovery.

Chris Weston from Pepperstone explained that traders are closely watching crypto markets for signs of broader economic sentiment. Investors are concerned that escalating trade tensions could slow down the global economy, hurt businesses, and drive up prices, adding more uncertainty to the markets.

Global Retaliation Adds to the Uncertainty

The situation is further complicated by retaliation from Canada, Mexico, and China. Canada has imposed 25% tariffs on $155 billion worth of U.S. goods, while China is preparing to file a lawsuit with the World Trade Organization. This trade war has also strengthened the U.S. dollar, weakening other major currencies and adding more pressure to global markets.

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Key Economic Data to Watch

Investors are now focusing on key U.S. economic data this week, including non-farm payrolls and unemployment figures. If the data shows a strong economy, the Federal Reserve may be even less inclined to cut interest rates, which could add more pressure to both crypto and equity markets.

Despite the turmoil, some experts believe the market’s reaction could be exaggerated. Peter Chung of Presto pointed out that Trump linked the tariffs to the fentanyl trade, suggesting they could be lifted if Mexico, Canada, and China take stricter action on drug control. If trade tensions ease more quickly than expected, markets may stabilize.

A Rocky Road Ahead

For now, uncertainty reigns. With inflation concerns rising and the Federal Reserve likely to keep interest rates higher for longer, risk assets—including cryptocurrencies—could remain under pressure in the coming weeks. Investors will need to stay vigilant as the global situation continues to unfold.

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