The crypto market continued to collapse on Monday as President Trump’s hopes resignation from tariffs failed to materialise. The stock market is recovering some of the decline, but Crypto remains in a red state all around.
Bitcoin (Cryptography: BTC) As of 1:15pm ET, it is down 4.4% over the last 24 hours and 7.6% since the end of Friday. Ethereum (Encryption: ETH) Dogecoin has declined 9.8% in the past day and 15% from Friday (Cryptography: Doge) During that time, it has decreased by 8.4% and 14.5% respectively.
Cryptocurrencies may be sold as an asset class that is contrary to traditional markets, but this is not the case. Bitcoin and other cryptocurrency trade correlates with growth stocks and climbs when the market is doing riskier trading with high-growth companies. But when the market drops, the opposite happens. Growth stocks plummet, and crypto often becomes that.
What’s happening today is a continuous sale as President Trump announced last week. The market appears to recognize that tariffs are here to stay, and if the threat of higher tariffs on China is true, the trade war could escalate from here.
Trade wars do not directly affect cryptocurrencies, but indirect effects can have a major impact.
Most cryptocurrencies are not “productive assets.” This means that it does not generate revenue for the owner. Instead, they are digital assets and have gained value over the past decade as investors poured money into the industry. Buying pressure will increase the value.
However, the trade war and subsequent recession can cause money outflows as traders recognize the losses and long-term investors surrender for more everyday uses or require capital.
Most of these assets were created after the Great Recession, so we don’t see how investors handle digital assets during normal recessions. Crypto was one of the biggest beneficiaries of the Covid-19 pandemic response as stimuli were checked and increased trades in between increased risk assets increased value.
Cryptocurrency prices continue to be unstable, but the direction will depend on what happens in the US economy. Economists are increasing the probability of a recession in 2025, which could further reduce the market, including crypto.
Inflation can also be driven highly, but Crypto has not proven to be a great hedge against past inflation. In 2022, cryptocurrency value fell when interest rates rose to combat inflation. If inflation rises this year due to tariffs, don’t assume that codes will become a secure shelter.
The story continues