On April 3, yields on long-term US government debt fell to their lowest levels in six months as investors reacted to growing concerns over the global trade war and a weakening US dollar. The yield on the 10-year Treasury note briefly touched 4.0%, down from 4.4% a week earlier, signaling strong demand from buyers.
At first glance, the potential for economic recession may seem negative for Bitcoin (BTC). However, reduced returns from fixed-income investments encourage allocations to alternative assets, including cryptocurrencies. As traders seek distinct advantages during turbulent times, the possibility of Bitcoin reaching an all-time high in 2025 remains plausible.
Tariffs Create Supply Shock and Affect Fixed-Income Returns
Recent US import tariffs may negatively impact corporate profitability, leading companies to deleverage and subsequently reducing market liquidity. Any increase in risk aversion often exerts a short-term negative effect on Bitcoin, largely due to its strong correlation with the S&P 500 index.
According to Axel Merk, Chief Investment Officer and Portfolio Manager at Merk Investments, tariffs induce a “supply shock,” causing an imbalance between demand and the reduced availability of goods and services, especially if interest rates are declining. This scenario could pave the way for inflationary pressures, positioning Bitcoin as an appealing alternative asset.
Even for those who do not view Bitcoin as a hedge against inflation, the allure of fixed-income investments diminishes in such a scenario. If just 5% of the world’s $140 trillion bond market shifts to seek higher returns elsewhere, this could translate into $7 trillion in potential inflows into stocks, commodities, real estate, gold, and Bitcoin.
Weaker US Dollar and Rising Gold Prices Favor Alternative Assets
Gold has surged to a $21 trillion market capitalization, reaching consecutive all-time highs. As higher gold prices incentivize previously unprofitable mining operations, the total supply produced could limit its long-term bull market potential. Meanwhile, the US dollar has weakened against a basket of foreign currencies, with the DXY Index dropping to 102 on April 3, its lowest level in six months. This decline in confidence regarding the US dollar could spur other nations to explore alternative stores of value such as Bitcoin.
This shift does not occur overnight; however, the trade war may gradually lead to decreased reliance on the US dollar, particularly among nations feeling pressured by its dominant role. Although a return to the gold standard is unrealistic, any movement away from traditional fiat currencies strengthens Bitcoin’s long-term upside potential and affirms its role as an alternative asset.
Insightfully, Japan, China, Hong Kong, and Singapore collectively hold $2.63 trillion in US Treasuries. Should these regions choose to retaliate, bond yields could reverse their trend, raising new debt issuance costs for the US government while further weakening the dollar. Consequently, investors may pivot away from stocks, leaning towards scarce alternative assets like Bitcoin.
While timing Bitcoin’s market bottom can be unpredictable, the resilience shown by the $82,000 support level amidst worsening global economic uncertainty is certainly promising.
This article serves general informational purposes and does not constitute investment or legal advice. The views expressed are those of the author alone and do not reflect Cointelegraph’s positions.
