Bitcoin (Cryptography: BTC) It’s not as safe as holding cash when the economy is tough. As a cryptocurrency, it is unstable and it is almost impossible to use it to buy what you actually need, like a burrito.
But when it comes to how the economy responds to tariffs proposed by the Trump administration, it could be a very good asset, especially if you are worried about your purchasing power being eroded. This is why.
Before we know how Bitcoin can be a useful investment in the new US tariff context, we need to learn a bit about how tariffs affect the economy.
Tariffs are considered inflation as they tend to increase the prices consumers pay for goods and services. This is because companies face increased costs of inputs, raise prices to maintain margins, and consumers often have no alternative places to buy what they need, not facing the same set of constraints. This means that consumer-holding Fiat currencies, such as the dollar, have less purchasing power as a result of tariffs.
As with the effects of monetary inflation that stem from an increase in money supply, there is no guarantee or expectation that wages will rise to a new rise in the goods. Therefore, the same dollar number will chase after expensive items, which will require a reduction in the average consumption level of those items. Unless consumers can reduce the decline in purchasing power by holding assets that hold purchasing power in Fiat currency.
Bitcoin cannot protect you from any tariff-driven price spikes, but it is less exposed to their economic risks than traditional assets that are directly hit by declining margins and lower global demand. Holding Bitcoin means partial separation from the Fiat Currency system. The FiatCurrency system is constantly at risk from political and policy decisions, including tariffs.
When tariffs reduce trade, they can attenuate and potentially weaken the exporter’s demand for currency. However, in importing countries, particularly countries like the United States, which have a trade deficit, reducing imports could instantly strengthen their domestic currencies by reducing the dollar outflow. However, if tariffs cause retaliatory actions, reduce global growth, or spark inflation, the long-term impact could be a weakening of the dollar, especially if foreign holders lose confidence in the stability of US trade policies. And it appears that this is what happens with the onset of retaliatory tariffs announced by China on April 4th.
Therefore, the dollar could be even weaker. You could create a feedback loop with inflation rate. This is because imported products become even more expensive. However, the value of Bitcoin will not be eroded. It also does not hold it as a medium of exchange for trade, and it could completely escape most of the worst effects.
The majority of current social and government debate was around $1.8 trillion in 2024, which ended September 30th. It is clear that some people in the presidential administration believe that tariffs can play a role in addressing the issue.
Like it or not, the deficit is likely to continue to grow rather than shrink. Tariffs probably won’t have a direct effect. Currently there is no mechanism for them to achieve that goal. Therefore, bridging the gap between spending and income is likely to require more money to be printed. And printing more money reduces the purchasing power of the dollar.
That’s another important reason to buy Bitcoin. It cannot be printed. Its value is not linked to a single currency as it is tradeable in most other major currencies. It is short and its supply cannot grow any further. Its price could still fall considerably, but in the long run its purchasing power is more likely to rise than it would decrease.
The point here is not to convert all your dollars into Bitcoin or exchange all your assets. The idea is to hold some of the wealth in assets that are more resilient than the rest of the world. Especially if you can hold it for years, the disruption in the short-term market is an excuse to buy it more, rather than shrinking.
Consider this before purchasing inventory with Bitcoin.
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Alex Carchidi has a Bitcoin position. Motley Fool has a position and recommends Bitcoin. Motley Fools have a disclosure policy.
New tariffs could be another reason to buy Bitcoin.
