China Strikes Back: Bitcoin Slides as China Retaliates Against U.S. Tariffs

Following the latest news reports, Bitcoin (BTC) was down 2.5% during Tuesday morning Asia hours and fell to 98,500 as hostilities escalated. It went down after China allegedly issued a series of retaliatory measures: tariffs on the US and the antitrust investigation against US tech giant Google, among others. News about the spiralling trade war between US and China affected traditional and digital markets alike.

The trigger was US President Donald Trump’s decision to impose 10% tariffs on Chinese imports. Beijing hit back, slapping 15% duty on US coal and LNG, 10% on crude oil, agricultural machinery, pickup trucks and large-engine cars. This series of economic moves shook not only the diplomatic relationship but also the investor sentiment globally. While it seemed initially unfazed, the crypto market was later affected by the tensions.

The news from China wiped out the gains BTC made since the temporary pause of US tariffs on Mexico and Canada. After the news, BTC recovered from nearly $92,000 to over $102,000. However, renewed hostilities with China sent the momentum in the opposite direction, and BTC fell back below $100,000.

China’s Retaliation Extends Beyond Tariffs

China’s retaliation goes far beyond these tariffs. For many market analysts, Beijing anti-trust regulators investigated Google to see if the company breached rules on competitive practices in China. This move shows a deeper approach by China, one that targets American companies, not just American products, and further clouds the already deteriorating US-China relationship.

To add to the economic pressure, reports say China added US companies PVH Corp and biotechnology firm Illumina to its list of unreliable entities. This designation will restrict their operations in China in terms of import, export, and investment – a move that may have far-reaching consequences for the companies and the market. The message from Beijing couldn’t be clearer: China is ready to use both economic and regulatory tools to counter US pressure.

Global Financial Markets

The effects were immediate and far-reaching. Even Bitcoin, considered a hedge against traditional market volatility, wasn’t spared. The drop to $98,500 mirrored the increasing anxiety of investors not just about the immediate impact of tariffs but about a protracted economic fight between the two largest economies in the world.

Traditional markets also followed Bitcoin’s lead. Nasdaq futures were reportedly down 0.6% as some worry spilled over into US tech stocks given the Google investigation. The US dollar index, or DXY, rose as investors fled to safe assets which is typical during periods of high geopolitical risk. A strong dollar is another headwind for Bitcoin and other risk assets.

Expert Views

Analysts see it differently. According to Louise Loo, China’s lead economist at Oxford Economics, China’s retaliatory tariffs are “symbolic for now,” and Beijing is being cautious not to escalate the situation too fast. She, however, warned that this could be a prelude to more significant actions if tensions continue to rise.

Sean Dawson, head of research at crypto trading platform Derive.xyz painted a bleak picture of the crypto market. He said recent price movements reflect broader concerns about global economic stability. The risk of a long trade war and tightening financial conditions could put sustained pressure on digital assets, he added.

Not all are pessimistic, though. Some analysts think the drop might be temporary especially if the situation stabilizes or in cases where central banks take monetary easing steps to counter economic slowdowns. During previous periods of economic uncertainty, BTC has been resilient and often strongly bounced back once markets have adjusted to the new conditions.

So what does this mean for BTC’s role in the global financial system during all this market chaos? Conventional wisdom views BTC as a hedge against inflation and economic instability but recent performance has shown it’s not immune to geopolitical shocks. The correlation of cryptocurrency seems to increase more with traditional risk assets, which challenges the idea that it moves independently of wider economic trends.

Long Term Fundamentals for Bitcoin Remain Intact

Advertisement Banner

In terms of underlying tech and network security to increasing institutional investors, it sets up further upside. Any regulatory clarity in the US and elsewhere could bring more investors in. The new executive order by President Trump to put clear rules in place for US crypto firms, in particular, was a step in the right direction but got lost in the noise of trade tensions immediately after.

Until the situation settles, Bitcoin’s price movements will follow the general economic outlook. This volatility brings risk and opportunities for investors. Those who can take a long-term view may see this as an opportunity to buy in, but short-term traders will need to be more cautious.    

The BIT Journal is available around the clock, providing you with updated information about the state of the crypto world. Follow us on Twitter and LinkedIn, and join our Telegram channel.

FAQ

1. Why did BTC’s price drop after China’s retaliatory tariffs?

BTC’s fall is due to increasing investor anxiety over the US-China trade tensions. Tariffs and probes is setting up economic dislocations. That’s pushing investors away from risk assets like cryptocurrencies.

2. How does the US-China trade war affect global financial markets?

Because it creates uncertainty, disrupts the supply chain and can lead to slower global growth. This hurts traditional markets and digital assets like Bitcoin.

3. What does the Google antitrust probe mean?

The Google investigation is China’s signal to go after US companies as part of its broader economic counterattack. This means more regulatory risk for US tech companies in China.

4. Can Bitcoin recover from this?

Though it’s tough now, Bitcoin has returned from these slumps. Its long-term prospects are good, especially in a stable economic environment or supportive monetary policy.

5. Is BTC a safe-haven asset?

BTC is debated to be a safe-haven asset; though it’s done well in many economic crises, its recent behavior has raised the possibility it behaves like traditional risk assets in extreme uncertainty.

Glossary

• Antitrust Inquiry: A government investigation into the suspected corporations’ anti-competitive behavior to maintain fairness in the market.
• Export Controls: Administrative constraints restricting the exportation of specific goods, technology, or services to some nations for purposes pertaining to economic or security reasons.
• Nasdaq Futures: A contractual relationship agreed upon between two parties to gain from any future movement in the Nasdaq stock market index.
• Safe Haven Assets: Investments expected either to hold their value or gain in value during market turmoil or economic downturn.
• Trade War: An economic warfare in which countries keep on raising tariffs or imposing other trade barriers against each other and where each increment is somehow perceived as being larger than the previous dispute.

References

1. CoinDesk
2. The Guardian.
3. Associated Press. 
4. The Wall Street Journal.
5. Bloomberg.