On April 2, 2025, President Donald Trump announced new "Liberation Day" tariffs, including a 10% baseline on all imports and higher rates for specific countries, such as 34% for China and 20% for the European Union.
Previously, on March 27, Trump’s announcement of 25% tariffs on foreign-made cars and auto parts sent shockwaves through financial markets, including the cryptocurrency sector.
These measures will increase import costs, leading to higher consumer prices and probably sustained inflation. These tariffs have also heightened concerns about a recession, as indicated by prediction markets showing over a 50% probability of an economic downturn.
In the aftermath, Bitcoin, Ethereum, Solana, and other cryptocurrencies fell as investors shifted toward safer assets. So, in this post, we explore the short-term and long-term effects of tariffs on cryptocurrency prices, what investor sentiment is like, and the potential role of Bitcoin as a hedge against economic instability.
Impact of tariffs on cryptocurrency prices
Following the tariff announcement, the cryptocurrency market experienced a broad sell-off. On April 2, 2025, President Donald Trump announced new tariffs, including a 10% baseline on all imports and higher rates for specific countries, such as 34% for China and 20% for the European Union.
Shortly after the announcement, Bitcoin's price dropped from nearly $88,000 to just over $82,000.
Other major cryptocurrencies also declined:
Ethereum (ETH): fell from $1,934 to $1,797.
XRP: decreased from $2.21 to $2.03.
Crypto-related stocks also followed this downturn. For instance, Strategy (formerly MicroStrategy) declined by approximately 7%, Coinbase Global fell 6%, and Robinhood dropped 9%.
This market reaction reflects investor concerns that the tariffs could worsen inflation and increase recession risks, leading to tighter financial conditions that may negatively impact cryptocurrency valuations.
Market sentiment turns risk-off
The tariffs have heightened fears of inflation and slower economic growth, leading to a risk-off sentiment among investors. Key factors driving this shift include:
Trade war fears: The new tariffs could escalate tensions with trading partners, leading to retaliatory measures and further economic disruption.
Inflation concerns: Higher import costs may drive up consumer prices, reducing purchasing power and increasing pressure on central banks to maintain restrictive monetary policies.
Liquidity crunch: Investors are pulling funds from speculative assets to mitigate potential losses in a volatile market.
This shift in sentiment has contributed to the downward pressure on crypto prices.
Potential long-term effects of tariffs on crypto
The uncertainty surrounding trade policies is likely to sustain heightened volatility in cryptocurrency markets. Factors contributing to this include:
Policy uncertainty: Investors are unsure whether additional tariffs or trade restrictions will follow, creating hesitation in the market.
Speculative trading: Traders may amplify price swings by overreacting to news headlines, leading to exaggerated market movements.
The tariffs don’t just affect crypto—they ripple across all financial markets:
Stock markets: Automakers and tech firms reliant on imported components could see declining stock prices.
Forex Markets: The U.S. dollar may strengthen initially due to safe-haven demand but could weaken if trade deficits widen.
Commodities: Gold and silver may rise as investors seek stability.
Historical Context: Tariffs and Financial Markets
Tariffs have always played a significant role in shaping financial markets and global economies throughout history. Below is a historical context of how tariffs have impacted financial markets, dating back to the Great Depression:
— The Smoot-Hawley Tariff Act (1930) and the great depression
The Smoot-Hawley Tariff Act raised U.S. import duties on over 20,000 goods to historically high levels. As a result, global trade collapsed, U.S. exports fell by over 60%, and retaliatory tariffs from other countries worsened the Great Depression. Then, the Dow Jones Industrial Average declined by nearly 90% from its 1929 peak to 1932, worsened by economic contraction.
— Post-WWII Tariff Reductions and global growth
The General Agreement on Tariffs and Trade (GATT, 1947) promoted lower tariffs worldwide, facilitating international trade. The global economy expanded rapidly, with U.S. GDP growing by 4% annually, while the stock market entered a long-term bullish phase.
— Nixon Shock and Protectionism (1971)
President Richard Nixon ended the convertibility of the U.S. dollar into gold, effectively dismantling the Bretton Woods system. This move aimed to stop gold outflows, protect U.S. economic interests, and give policymakers more control over monetary policy. Additionally, Nixon imposed a 10% import surcharge to counter trade imbalances and introduced wage and price controls to curb inflation.
Initially, the market reacted positively, with stocks rising as investors welcomed the flexibility in monetary policy. However, the long-term consequences were severe. The dollar depreciated, triggering inflationary pressures that led to the stagflation crisis of the 1970s—high inflation combined with sluggish economic growth.
The Dow Jones fell over 40% from 1973 to 1974 as oil shocks and rising costs weighed on the economy. The shift to a fiat currency system also increased volatility in foreign exchange markets.
The impact of removing gold backing is still debated today, especially in discussions around Bitcoin, which some view as a hedge against fiat currency instability.
— China Tariffs and WTO Entry (2000s)
On December 11, 2001, China joined the World Trade Organization (WTO) after agreeing to lower tariffs and open its markets to foreign investment. The U.S. granted China Permanent Normal Trade Relations (PNTR) status, making tariff reductions permanent.
The average U.S. tariffs on Chinese imports dropped from 40% to around 4%, leading to a surge in imports. As a result, lower production costs boosted corporate profits, fueling an 80% increase in the S&P 500 from 2003 to 2007. Cheaper Chinese goods also helped keep inflation low in the U.S. during the 2000s.
By the late 2000s, concerns over China’s intellectual property policies, trade imbalances, and currency manipulation grew. In response, the U.S. began reintroducing targeted tariffs, leading to trade disputes that escalated into the 2018-2020 U.S.-China Trade War.
— Trump’s Trade War (2018–2020)
President Donald Trump launched a trade war in 2018, primarily targeting China but also affecting global trade partners, including the European Union, Canada, and Mexico.
His administration argued that China’s unfair trade practices, intellectual property theft, and trade imbalances necessitated aggressive action. The U.S. imposed tariffs on hundreds of billions of dollars worth of Chinese goods, prompting swift retaliatory tariffs from Beijing.
The trade war led to periodic market turbulence as investors reacted to tariff announcements, retaliatory measures, and negotiations. The S&P 500 fell 20% in late 2018 due to fears of economic slowdown, but it rebounded in 2019 after the Federal Reserve cut interest rates.
Bitcoin surged from $3,700 in early 2019 to over $13,000 in June 2019, partly driven by uncertainty around the trade war. Investors saw crypto as a hedge against economic uncertainty and central bank policies. However, in late 2019, Bitcoin corrected below $7,000 as tensions eased.
— April 2, 2025: Trump’s Second Tariff Wave
On April 2, 2025, President Donald Trump announced a comprehensive tariff strategy termed "Liberation Day," aiming to address trade imbalances and bolster domestic manufacturing.
Details of the tariff plan
A baseline 10% tariff on all imports into the United States, effective April 5, 2025. There are also higher tariffs on select nations, effective April 9, 2025, including:
China: An additional 34% tariff, raising the total to 54% when combined with existing duties.
European Union: 20% tariff.
Japan: 24% tariff.
Vietnam: 46% tariff.
The administration asserts that these measures aim to correct longstanding trade deficits, re-shore manufacturing jobs, and enhance federal revenue. President Trump described the initiative as a declaration of economic independence.
The announcement led to immediate market volatility, with declines in after-hours trading. The S&P 500 ETF dropped 2.8%, and Bitcoin's price fell from nearly $88,000 to just over $82,000.
Lessons from history
Tariffs and trade wars often lead to initial market volatility and economic slowdowns. The effects depend on broader economic conditions, monetary policy, and global trade responses.
Historically, inflationary environments boost crypto, but economic contraction leads to sell-offs.
Strategic takeaways for investors
To manage risk and improve long-term gains:
Investors may use Dollar-Cost Averaging (DCA) to accumulate crypto during market dips, lowering their average entry price over time.
For long-term positioning, experts say Bitcoin and Ethereum should be the core focus, as they have stronger fundamentals, widespread adoption, and institutional backing.
Stay informed on macro trends like Federal Reserve policy changes, international trade negotiations, and inflation data, as these factors can significantly impact the broader market and crypto prices.
Conclusion
President Trump’s new tariffs have undeniably shaken cryptocurrency markets, triggering declines as investors brace for a longer economic downturn. While heightened volatility is likely, cryptocurrencies, particularly Bitcoin, could fail as a hedge against economic instability if inflation persists and traditional markets struggle.
This content is provided for informational purposes only and should not be construed as investment advice. Investing in Web3 and cryptocurrencies involves risks. It is essential to conduct your own research before engaging with any Web3 apps or cryptocurrencies.
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