Bitcoin Faces 75% Crash Risk Amid US-China Trade Tensions

A total freeze in US-China trade could have significant implications for the crypto market. In times of geopolitical instability and economic upheaval, investors historically seek out "safe haven" assets like gold. However, over the past decade, Bitcoin has emerged as a digital alternative to gold, and in a scenario where US-China trade collapses, confidence in traditional financial systems and fiat currencies could be severely impacted.

This could drive upward pressure on Bitcoin’s price as investors seek non-state, borderless alternatives to protect their wealth. The US dollar currently dominates as the world’s reserve currency, largely due to America’s central role in global trade and finance. But if the US is no longer seen as a stable trading partner, trust in the dollar may erode, especially among countries that rely heavily on both Chinese and American markets. In that case, Bitcoin could increasingly be seen as a neutral alternative for settling cross-border payments or hedging against currency volatility. This would be especially true in regions where financial systems are strained and digital alternatives are gaining traction.

A trade freeze would severely disrupt global supply chains and likely trigger inflation, currency depreciation, and capital restrictions, especially in emerging markets. In countries facing such pressures, crypto adoption could accelerate as individuals and businesses want to preserve value and conduct international transactions outside the traditional banking system. Bitcoin, stablecoins, and even DeFi platforms could be crucial in filling the gap, offering financial access and liquidity where local systems fail.

While crypto might benefit from instability in the private sector, governments may respond with increased scrutiny and regulation. The US and China are willing to crack down on crypto when it threatens monetary control or national interests. In a full-scale trade war, crypto could be viewed as a threat to economic sovereignty, causing tighter controls, bans, or surveillance. This risk is particularly high if Bitcoin becomes a major vehicle for capital flight or sanctions evasion.

Despite its long-term promise, Bitcoin remains highly volatile. An abrupt and total freeze in US-China trade would likely spark global panic in financial markets, and crypto would most likely not be immune. Initial reactions could include sharp sell-offs as investors rush for liquidity. However, this could be followed by a speculative surge, as opportunistic buyers could bet on crypto’s role in a reshaped financial order.

The ongoing US-China trade tensions have already created a wave of fear in financial sectors, including crypto. The recent US-China trade talks made some progress but did not deliver any significant breakthroughs. Investors were hoping for good news, but the agreement was limited to rare earth exports, and tariffs remain high. This lack of clarity and the continued high tariffs have increased skepticism among investors, leading to a broader sell-off in the crypto market.

The lack of an interest rate cut by the Federal Reserve has also contributed to the market's decline. The latest Consumer Price Index (CPI) numbers showed inflation at 2.4%, above the Fed’s 2% target. This means no rate cut is expected in the near future, disappointing traders who were hoping for a rate cut to support risky assets like crypto. With stronger job data and sticky inflation, investors are being more cautious, leading to a decline in the crypto market.

Veteran trader Peter Brandt's Bitcoin crash prediction, warning it could fall 75% like in 2022, has also spooked the market. This prediction sparked memories of the previous crash when BTC dropped from $69,000 to $16,000. However, many analysts disagreed, stating that today’s market has stronger fundamentals. Despite the crash, the Fear and Greed Index remains in the “Greed” zone, indicating that investor interest is still alive. Famous author Robert Kiyosaki's move to buy more Bitcoin has also given some confidence back to retail investors, adding a bit of strength to the market.

The upcoming weeks, especially Fed announcements and geopolitical developments, will control the direction of the crypto market. For now, investors are watching closely, hoping that this is a brief intermission and not a big crash. The sector dropped from $3.47 trillion to $3.37 trillion in the course of a day, and the market is still volatile. The lack of a complete solution to the US-China trade tensions and the continued high tariffs have created a sense of uncertainty in the market, leading to a broader sell-off in the crypto market.