Bitcoin Plummets 25% Amid US Tariff Wars, Recession Fears

Bitcoin's bull market is facing significant challenges as concerns over a potential US recession and tariff wars loom large. The first three months of the Trump administration have been marked by escalating trade tensions, with tariffs imposed on Canada, Mexico, and China. These actions have led to unexpected market turmoil, with the crypto market feeling the impact.

The volatility in the crypto market has been pronounced, with wild swings reflecting broader economic shifts. The uncertainty surrounding US trade policy has created a rollercoaster of market conditions, with crypto prices closely tied to equity markets. This volatility underscores the high-risk nature of cryptocurrencies, which are sensitive to macroeconomic conditions and policy changes.

Former US Treasury Secretary Lawrence Summers has criticized the tariff policy, suggesting that it has already cost the US stock market $2 trillion in value. Summers' comments highlight the potential long-term impact of these measures on US competitiveness and market stability. The fear gauge on Wall Street has risen significantly, reflecting the growing uncertainty and risk aversion in the market.

Despite the potential negative impact of tariffs, there is also a possibility that a trade war could benefit Bitcoin. If tariffs weaken the US dollar through inflation, investors may turn to Bitcoin as a safe haven. This could be particularly true if tariff-hit nations devalue their currencies, making Bitcoin an attractive vehicle for capital flight. However, Bitcoin's 24/7 trading and instant reaction to macroeconomic shifts make it highly vulnerable to risk-off sentiment.

The crypto community initially expected Trump's return to the White House to boost Bitcoin prices, and initially, it did—rising from $69,374 on Election Day to a record $108,786 by Inauguration Day. However, since then, Bitcoin has tumbled, dropping below $80,000 by late February and again in March. This price weakness comes despite the administration's pro-crypto stance, including plans for a strategic crypto reserve and market-structure reforms.

Cumulative flows into Bitcoin Spot ETFs reached record highs following Trump’s victory, with investors pouring over $10 billion into these instruments in the aftermath of the election. However, growing concerns over a potential tariff war seem to have taken a toll on market sentiment and, by extension, on cryptocurrencies. Since early February, Bitcoin ETFs have seen significant outflows as uncertainty looms over the broader economic landscape. At the same time, safe haven assets like gold have responded positively amid the tariff war.

Some traders believe the market will adjust to focus on fundamentals over the blunt use of tariffs as a way to force policy changes among US allies. Bob Walden, head of Trading at Abra, views tariffs as "just a headline" that influences short-term investor sentiment but doesn't alter the market's fundamental conditions. Walden points to Trump’s fiscal austerity program as the real driver of crypto markets, suggesting that tariffs are just another piece in the fiscal austerity trade happening across global markets.