For a brief moment after the tariff announcements, it looked like Bitcoin (BTC +0.38%) could keep its head when all around it, stock markets were losing theirs. The stock market plummeted on April 3 and 4, as investors and businesses digested the impact of President Donald Trump's tariffs.
Bitcoin dropped just over 1.5% while the S&P 500 lost more than 10% in two days. It is a rare day when crypto is less volatile than stocks. But rare days aren't so surprising given the breadth and depth of the tariffs. Plus, Bitcoin did stumble in the following days.
Let's zoom out and look at how tariffs could impact Bitcoin.
CRYPTO: BTC
Key Data Points
How Bitcoin might weather the tariff storm
The full impact of tariffs on the economy and the U.S. dollar remains unclear. Bitcoin bulls argue this is its chance to shine.
1. Bitcoin might realize its "digital gold" potential
A trade war could lead to higher inflation and a weaker U.S. dollar and Chinese yuan. Some experts believe this could eventually be good for Bitcoin. As Zach Pandl, head of research at Grayscale, told CoinDesk, "I think tariffs will weaken the dominant role of the dollar and create space for competitors including Bitcoin."
Some people think Bitcoin has potential as a form of digital gold -- a safe haven asset against inflation. Like gold, Bitcoin isn't controlled by any government, and only a finite amount of Bitcoin will ever be produced. So far, this has not been the case. For example, Bitcoin crashed in 2022, even though inflation hit a 40-year high. Cryptocurrencies behave more like tech stocks than gold, and some fear it is still too volatile to act as an inflation hedge.
However, we are now in uncharted territory. Not only is a 104% levy on Chinese imports unprecedented, but Bitcoin is also more established and accessible than in the 2018 U.S.-China trade war. This makes it more attractive for investors looking to diversify.
2. Pro-crypto policies could offset tariff impact
Tariffs have undoubtedly shaken many investments, including crypto. However, the administration responsible for tariffs has also made several crypto-friendly moves. These include:
- The formation of a Strategic Bitcoin Reserve and digital asset stockpile
- Nominating Paul Atkins -- a crypto-friendly face -- to become the next SEC Chair
- Appointing David Sacks as White House artificial intelligence (AI) and crypto czar
How tariffs could drag Bitcoin down
On the other side, a global recession would have a big impact on Bitcoin's price, particularly in the near term. As recession fears grow, crypto prices are feeling the pressure.
Bitcoin doesn't do well in times of economic uncertainty
Bitcoin tends to struggle when investors get nervous. Bitcoin stumbled on recession fears in 2018 and again 2022. Business leaders like BlackRock's Larry Fink and JPMorgan Chase's Jamie Dimon are already warning of an economic slowdown. It is hard to overstate the potential impact of recession, inflation, and falling consumer confidence on Bitcoin's price.
U.S. mining will become more expensive
One concrete way tariffs will affect the crypto industry is through Bitcoin mining. U.S. miners may find it is more expensive to import equipment. This could cause miners to slow their activity -- or even move elsewhere. Investors will have to wait and see how mining industry changes affect price and network security.
No investment is totally tariff-proof
If you're looking for a safe asset during times of market turbulence, Bitcoin is not it. There are arguments for including a small percentage of Bitcoin in your portfolio as a hedge against uncertainty. But it's still a high-risk asset and the current turmoil doesn't make it any safer.
People may turn to crypto if the tariff shockwaves deeply impact the global economy and traditional currencies. However, those same shockwaves could also trigger a serious price drop as people turn away from risk-on investments.
Don't make panic decisions about your investments -- if you have a balanced portfolio and a long-term horizon, stick with it. Depending on your goals and risk tolerance, you might opt to diversify with a little bit of Bitcoin. But only if you think it could have value in the coming decade or two.
