Trump’s Tariff Severe Consequences to Crypto Market

Donald Trump’s tariff policies have sent ripples across global markets, with significant implications for both traditional finance and the cryptocurrency sector. As the administration rolls out measures like the “Liberation Day” tariffs—unexpected reciprocal tariffs with several countries—the economic landscape is shifting.

Will BTC and the crypto market reclaim what people called a “future asset” or just slip gradually in this cycle?

General Impact and Consequences of Tariffs on Traditional Markets

Overall economics market

Traditional financial markets, including stocks, have slumped, with some indices falling to levels last seen in 2023 during the onset of rate hikes. This reflects a “risk-off” sentiment as investors brace for higher costs, disrupted supply chains, and potential retaliation from trading partners.

Economists warn that these tariffs could fuel inflation by increasing the price of imported goods, a concern amplified by the U.S.’s already substantial fiscal deficit. A market selloff with billions wiped from valuations underscores the tariffs’ immediate destabilizing effect on equities and commodities. For traditional finance, this policy signals a protectionist shift that could erode global trade norms, impacting everything from corporate earnings to consumer prices.

Impact of Trump’s Tariffs on Currency Values

Trump’s tariffs have also shaken up global currency markets. As the U.S. imposes steep import taxes—like the 10% baseline and higher reciprocal tariffs—many countries’ currencies are losing value against the USD. This happens because tariffs boost demand for dollars as nations pay for pricier U.S. goods or pivot to American suppliers, strengthening the USD relative to currencies like the euro or yen.

However, the USD isn’t reigning supreme everywhere. It’s actually weakening against the Swiss franc (CHF). Why? Switzerland’s safe-haven status shines during this trade turmoil. Investors flock to the CHF, a historically stable currency, as tariffs spark fears of inflation and economic uncertainty globally. Switzerland’s franc, with its neutral stance and robust financial system, outperforms the USD, despite the latter’s exertions elsewhere.

Massive Consequences for Crypto

Short-Term Fear and Massive Sell-Offs

In the crypto market, the tariffs have triggered an immediate wave of fear and selling pressure. Recently, the fear and greed index for crypto has ranged from fear to extreme fear, indicating the instability of investors’ minds.

Bitcoin BTC, often viewed as a barometer for crypto sentiment, dropped 6% on the day of the tariff announcement. Although BTC’s price later saw a slight increase, it plummeted to $77,000 early this week. This reflects the top cryptocurrency’s sensitivity to macroeconomic news, particularly amid the looming threat of a trade war.

As a “risk asset” generally, crypto tends to suffer when macroeconomic uncertainty rises, and Trump’s policies have amplified this dynamic. The prospect of tariff-driven inflation has spooked investors, who fear tighter monetary policy responses from the Federal Reserve, such as sustained high interest rates, to curb rising prices. This has led to volatile price swings, with BTC and other cryptocurrencies experiencing rapid ups and downs. The perception of crypto as a speculative investment, rather than a safer asset like gold, exacerbates these short-term sell-offs.

Market instability is evident as traders react to each tariff-related headline, creating a rollercoaster effect that undermines confidence in the sector.

Reduced Investment Amid Trade War Fears

Beyond the immediate panic, Trump’s tariffs signal a potential escalation into a broader trade war, further dampening crypto’s outlook. As global trade tensions rise, investors are increasingly wary of allocating capital to high-risk assets like cryptocurrencies.

This caution is reflected in significant outflows from Bitcoin and Ethereum Exchange-Traded Funds (ETFs), with both BTC ETFs and ETH ETFs seeing consistent withdrawals since the tariff rollout began. Funds are also draining from various blockchain ecosystems like Solana, Ethereum, etc., as evidenced by declining on-chain activity and liquidity.

A looming trade war could choke off the foreign investment that has historically buoyed crypto markets, particularly from regions like Asia and Europe now facing higher U.S. tariffs. This decrease in the amount of money flowing into cryptocurrency could impede the sector’s growth, potentially undoing the excitement that Trump’s pro-crypto rhetoric generated during his campaign.

Weakened Belief with Digital Gold—BTC

Additionally, these tariffs might make crypto less attractive as a shield against inflation. While gold and silver prices are climbing steadily amid the looming trade war, as they’re seen as reliable reserve assets. Bitcoin, often dubbed “digital gold,” is struggling with a drop in value. Amid the chaos, Bitcoin is acting more like a risky investment and might not protect folks from rising prices as well as they hoped.

However, this could be a strategic move that countries, besides the US, might leverage in future negotiations. As trade wars escalate, countries could use BTC as a negotiation tool, such as an alternative asset or a card, to pressure the U.S. The growing adoption of BTC also helps nations reduce reliance on the USD—a currency the U.S. often wields as an economic weapon in trade conflicts.

As the USD-based financial system weakens, BTC could become an effective bargaining tool for other countries in dealings with the U.S. Perhaps in the future, BTC will outperform the broader crypto market, rising independently alongside the price of gold.

On top of that, Trump’s big economic plans—like focusing on tariffs and boosting U.S. manufacturing—could leave crypto rules unclear.

Even though he’s talked up cool ideas like a Strategic Crypto Reserve, that might get pushed aside, leaving the crypto world open to random crackdowns or delays in the reforms he promised. All this together makes things look pretty tough for crypto in the short run under these new policies.