Bitcoin Drops 3.5% as US-China Tariff Deal Boosts Stocks

Bitcoin's price experienced a notable sell-off following the announcement of a tariff deal between the US and China. This development, which initially seemed positive for global markets, led to a shift in investor sentiment away from Bitcoin and towards traditional stocks. The 90-day truce in the US-China tariff conflict resulted in reduced import tariffs, with discussions focusing on issues such as currency manipulation, steel price dumping, and restrictions on semiconductor exports. US Treasury Secretary Scott Bessent indicated that the agreement could be extended if both parties engage in constructive dialogue.

Bitcoin's recent performance has been influenced by broader macroeconomic conditions. The cryptocurrency reached its highest price in over three months at $105,720 on May 12 but failed to sustain this momentum. The drop to $102,000 coincided with a temporary easing of the US-China tariff conflict, puzzling traders who expected a positive reaction from Bitcoin. Part of Bitcoin’s recent lack of momentum can be attributed to its 24% gains over the previous 30 days, during which S&P 500 futures rose 7% and gold remained flat. Investors see little reason for further divergence between Bitcoin and traditional markets, especially since the 30-day correlation with the stock market remains high.

Additionally, Bitcoin has now surpassed the market capitalization of both silver and Google, making it the world’s sixth-largest tradable asset. News that Strategy acquired another 13,390 BTC between May 5 and May 11 has also raised concerns among investors. With BlackRock and Strategy together holding 1.19 million BTC, about 6% of the circulating supply, some traders worry that Michael Saylor’s company is largely responsible for supporting the price. Critics, such as Peter Schiff, predict that Strategy’s ever-increasing average purchase price could eventually lead to losses and force the company to sell some of its holdings to cover borrowing costs. However, this scenario seems unlikely, as the company has doubled its capital increase limit by $21 billion in stocks and another $21 billion in debt.

While traders often focus on Bitcoin-specific events, the most likely reason for the weakness near $105,000 is broader macroeconomic conditions. Although the pause in tariffs directly benefits the stock market, the effect on scarce assets like Bitcoin is somewhat negative. For example, gold fell 3.4% on May 12 as the demand for safe-haven assets declined. Gold has typically shown an inverse correlation with the US Dollar Index (DXY), which climbed to its highest level in 30 days on May 12. The strengthening US dollar signals investor confidence, despite a 0.3% decline in US first-quarter Gross Domestic Product and a 6.1% jump in pending home sales in March compared to the previous month.

The lack of conviction among Bitcoin investors when prices traded near $105,000 is at least partly due to reduced demand for scarce assets, as investors view the stock market as a more immediate and direct beneficiary of the US-China trade deal. Lower import duties suggest higher revenues and potentially improved profit margins for companies. Given the impressive $2 billion in inflows into US spot Bitcoin exchange-traded funds (ETFs) between May 1 and May 9, the likelihood of a price drop below $100,000 remains low. The steady demand for Bitcoin following a 24% monthly gain points to institutional adoption rather than retail-driven FOMO, which is a very positive sign for the price.