Bitcoin (Cryptography: BTC) It fell 5.4% on April 3rd as the Trump administration’s newly announced tariff policies were digested by the market. With so much economic uncertainty now, investors are looking for shelter from the chaos, it’s openly questionable whether tariffs could seriously harm the crypto sector or whether crypto could end up dragging along with everything else.
But is Bitcoin superior to its peers as a result of its highly distributed and decentralized nature? Let’s see and understand the exposure to a new set of risks.
The first thing investors need to recognize is that if they don’t know yet, Bitcoin is not commonly used as a medium to process international trade payments. There are several exceptions to its generality, primarily related to sanctions and dangerous attempts to circumvent other illegal purposes. Overall, however, it is not reasonable to expect Bitcoin to be undone if trade is damaged by the possibility of future implementation of the Trump administration’s tariffs on imports. Therefore, if there is a detrimental effect on the demand for the coin, it is not from a company trying to avoid paying customs duties.
Another thing worth mentioning is, obviously, that tariffs are imposed on goods from the country, not on Bitcoin. Bitcoin can be used as a substitute. In other words, Bitcoin mined in China cannot be distinguished from Bitcoin mined in the US. Transferring a wallet holder from a wallet holder based in one country to a wallet holder in another country is not taxable. Anyway, it may not be possible from a technical standpoint.
However, if Bitcoin mining hardware produced outside the US is implemented as proposed tariffs, it is likely to be dramatically expensive to import. That means US mining companies will suffer. But that doesn’t mean that Bitcoin prices will suffer.
If new coin production is slowing, Bitcoin prices will likely rise rather than fall. Additionally, miners from other countries can purchase hardware at the same price as before customs duties were collected. If US hardware demand hits because it’s too high to make mining profits, they may have access to slightly cheaper hardware.
Therefore, assuming that Bitcoin is actually collected, it is not directly exposed to risks caused by new tariffs. Unfortunately, for holders, they are highly exposed to indirect risks, such as those derived from a sharply contracted global or domestic economy.
Some consider Bitcoin to be digital gold in the sense that these properties are more theoretical than empirically proven by performance during periods of turbulence like the present, but they still have the properties of a safe asset. For most investors, it is an asset that is less reliable than investing in a large company’s stock or index fund. It is true that these investors’ perceptions have shifted significantly towards seeing coins as safer assets within their class in recent years.
The point here is that when a market or economy falls, people tend to fall the most, so people jump to get rid of their risky assets. Bitcoin is at the top of the list of assets for many investors and dumps when they seem to get tough. If there is an economic recession caused by the Trump administration’s new tariffs, Bitcoin will become one of the assets that investors will settle to pay their bills if they are unemployed. Also, when daily living expenses rise sharply and constrain investment spending, there is no need for much purchasing pressure from anyone. This is a direct and expected outcome of the new tariffs.
Perhaps the biggest indirect risk of all is that Bitcoin’s price is simply reduced along with the main index, as the coin is increasing in level of integration with the traditional financial system. In this regard, it would be in line with an unpleasant ride due to the awful market sentiment based on real concerns about economic disruption due to tariffs. If this risk arises on its own and there is no real damage to the US economy, it will be a wise opportunity to actively purchase coins, but don’t bet on it. A more likely case is that there is a specific problem ahead, which takes longer to dissipate than simply a scary feeling.
Despite all of the above, Bitcoin is still worth buying and holding. That shortage will not be alleviated as a result of the recession caused by tariffs and duties.
Please note that you need to hold it for potentially years and long to eliminate any losses that may arise as a result of the tariff. Trade policies go back and forth. And investors who can hold a coin long enough to survive until the wind changes, even if it’s extremely uncomfortable for the time being.
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.
How will new tariffs affect Bitcoin? Originally published by The Motley Fool
