In recent days, Donald Trump’s decision to levy tariffs has notably impacted market sentiment, particularly concerning his pro-crypto promises. The result has been a considerable decline in bitcoin (BTC) and other major cryptocurrencies over the last 24 hours.
Despite this recent downturn, some traders are viewing the situation as a potential ‘buy-the-dip’ opportunity. This perspective is anchored in several key factors, predominantly pertaining to the anticipated growth and demand for dollar-backed stablecoins.
Peter Chung, head at Presto Research, shared a bullish outlook on stablecoins in a recent communication with CoinDesk. “Treasury Secretary Scott Bessent has noted recently that Trump prefers tariffs over sanctions as a diplomatic tool, as the latter push countries away from the dollar, weakening U.S. financial hegemony. If that’s the case, Trump would likely prioritize the Stablecoin Bill in Congress, as it would enhance the dollar’s functionality, reinforcing its global dominance,” Chung explained.
Echoing this sentiment, Vincent Liu, chief investment officer at Kronos Research, emphasized the potential for accelerated adoption of stablecoins amidst ongoing tariff concerns and currency volatility. “With ongoing concerns over tariff escalations and currency volatility—illustrated by the Canadian dollar’s decline against the USD since tariffs were introduced—stablecoins pegged to major fiat could see accelerated adoption,” Liu noted.
He elaborated that, “As a hedge against economic uncertainty, they streamline global transactions, remove forex conversion hurdles, and provide a seamless gateway into crypto. In the long run, increased stablecoin adoption could enhance liquidity, attract institutional capital, and drive regulatory clarity. This evolution may position stablecoins as a cornerstone of the crypto economy, reinforcing market stability and fueling sustained growth.”
The crypto market also experienced a significant flush, with approximately $2.2 billion in crypto futures liquidated since Sunday. High liquidations commonly signify an overstretched market, often indicating the conclusion of a price correction—creating a favorable environment for buying after a steep decline.
Areas on the price chart with substantial liquidation volumes can serve as support or resistance levels, where the market price might reverse due to the absence of selling pressure from these positions. However, a continued market decline could validate short positions, prompting traders to increase their bets. Conversely, contrarian traders often perceive heavy liquidations as a buying opportunity, anticipating a market recovery once the selling momentum diminishes.
What Happened?
Over the weekend, Trump imposed a 25% tariff on imports from Canada and Mexico, along with a 10% tariff on goods from China. This decisive move seemingly initiated a trade war, as Canada has retaliated with a 25% tariff on $106 billion worth of U.S. goods, and Mexico is anticipated to follow suit.
In the aftermath, two-year Treasury yields increased while the 10-year yield decreased, reflecting concerns around short-term inflation. Asian markets experienced a downturn on Monday, while gold prices fell and oil prices rose alongside a tanking crypto market.
Moreover, Trump has indicated that tariffs on European Union goods may be forthcoming, which the EU has vowed to counteract collectively. This could result in retaliatory measures that further exacerbate the situation.
The core principle behind tariffs is to elevate the cost of imports, thereby encouraging domestic production and decreasing reliance on foreign goods. However, this strategy can backfire by raising prices for U.S. consumers and undermining demand for goods from other countries, potentially retaliating with their tariffs and igniting a cycle of economic barriers.
Tariffs can disrupt established global supply chains, leading to increased costs, shortages, or higher prices, which may provoke additional protectionist actions from other nations. This burgeoning complexity and uncertainty can notably affect financial markets, including the crypto landscape.
The current lack of forthcoming catalysts means that the cryptocurrency markets may remain stagnant, awaiting a significant event capable of directly influencing bitcoin prices.
“Sentiment has turned negative with little hope that things can turn around, except for a potential Bitcoin Strategic Reserve and more regulatory support from the government,” remarked Nick Ruck, director at LVRG Research, in a recent Telegram message to CoinDesk. He aptly summarized the prevailing conditions: “Although the market conditions are vastly different, tariffs from the previous Trump administration could offer a template for understanding current fluctuations, which were often short-lived shocks against a backdrop of a persistent bullish trend.”
