Increased Trump Tariffs Likely Benefiting Bitcoin Yet Causing Market Struggles at Present
In a surprising turn of events, the ongoing trade tensions have had a significant impact on both traditional financial markets and the cryptocurrency sector. Here's a breakdown of the recent developments:
Interest rates on ten-year US government bonds have risen from 4% to 4.46%, reflecting increased investor uncertainty due to the tariffs. This rise could potentially lead to higher borrowing costs for businesses and consumers, further escalating economic concerns.
The tariffs have taken a toll on the cryptocurrency market, with Bitcoin and Ethereum experiencing painful declines. Bitcoin fell below $80,000, Ethereum below $1,500, and other cryptocurrencies also suffered losses. The total market capitalization of all cryptocurrencies has lost about $300 billion since April 4.
This decline in the cryptocurrency market can be attributed to several factors. Inflation due to tariffs is bad for Bitcoin, as it reduces the amount of money people have to invest in cryptocurrencies. Furthermore, the tariffs could potentially initiate and accelerate the process of de-dollarization that countries like China, Russia, and Brazil have long unsuccessfully hoped for.
The stocks of MicroStrategy, Coinbase, and American miners also fell due to the tariffs, indicating a broader impact on the cryptocurrency industry.
Countries that likely hold large amounts of US Treasury securities in their reserves and could be affected by Trump-era tariffs include China, Canada, Japan, and South Korea. These economies have significant trade relationships with the US and substantial holdings of US debt, making them sensitive to trade policy shifts like tariffs introduced under Trump.
An analyst from Deutsche Bank warns that the course of stocks, bonds, and currencies over the past week indicates a simultaneous collapse of the prices of all US assets. A gigantic sell-off of American securities threatens if these countries sell only small parts of their government bonds in response to Trump's tariffs.
Global stock markets have plunged due to the announced tariffs by Donald Trump. Around $1.36 billion worth of positions such as futures or perpetual swaps were liquidated.
Central banks might have to release dollars from their reserves to supply the import economy with foreign exchange if they absorb and hold fewer dollars in the future. The USA's trade deficit is closely tied to the position of the dollar as a global reserve currency.
In a surprising twist, some analysts, like Matthey Sigel from VanEck, believe that the tariffs are good for Bitcoin as they threaten to trigger monetary and fiscal fragmentation. Bitcoin, with its borderless, transferable, and incorruptible nature, could position itself in the global economy should the dollar fail.
Tether, Circle, and other stablecoin issuers primarily cover their coins with government bonds. As the value of these bonds fluctuates, the stability of these stablecoins could be at risk.
The Bitcoin dominance index, which is the share of Bitcoin in the total value of the crypto market, has risen to 62 percent. This could indicate a shift towards Bitcoin as a safe haven asset during times of economic uncertainty.
In conclusion, the ongoing trade tensions have had a significant impact on various financial markets, with both traditional assets and cryptocurrencies experiencing turbulence. The bear market in cryptocurrencies has become unmistakable, with Bitcoin and Ethereum leading the decline. The situation is likely to continue evolving as the trade tensions persist.
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