After some choppy times, the waters are slowly calming, and as new trade deals are negotiated, a “new normal” trade order emerges. This has driven the price of Bitcoin to all-time highs. Still, it has also highlighted the crypto market’s extreme volatility and direct link to ongoing tariff and trade deal negotiations.

For investors, understanding how these trade policies affect digital assets is crucial for navigating both immediate volatility and longer-term trend

Short-Term Turbulence: Volatility and Risk-Off Sentiment

U.S. tariff announcements in early 2025 triggered sharp sell-offs across crypto markets. Bitcoin, for example, dropped as much as 19% following the news, with altcoins like Ethereum plunging over 40% and high-beta tokens falling even further.

Market capitalization for the entire crypto sector fell by more than 25% from January highs, erasing about $1 trillion in value. This reaction mirrored broader financial markets, with investors fleeing risk assets, favoring traditional safe havens like gold and government bonds.

As countries succumbed to US pressure and begrudgingly agreed to new trade deals, markets began to recover, only to free-fall again — and then recover. Today, Bitcoin sits at an all-time high of $111,385. Tomorrow, who knows? However, one thing is clear: investors in the cryptocurrency market should understand the potential effects of macroeconomic volatility to react and plan accordingly.

The immediate drivers of this volatility include:

Uncertainty: Tariffs create macroeconomic instability, making investors more cautious and prompting widespread sell-offs.

Liquidity Crunch: As capital withdraws from speculative assets, price swings amplify, and market liquidity drops

Mining Costs: Tariffs on imported technology, especially from China, have raised the cost of mining equipment, squeezing profit margins and impacting network security.

Investor Sentiment: From Fear to Gradual Recovery

Investor sentiment has been notably shaken. The Crypto Fear & Greed Index fell below 20 during the height of tariff concerns, reflecting deep anxiety and risk aversion. However, as markets began to digest the new policy landscape and some tariff pauses were announced, sentiment started to recover, and Bitcoin rebounded. Bitcoin’s surge above $110,000 marks a pivotal moment for the crypto market, signaling renewed confidence and a broader shift toward mainstream acceptance.

Inflation, Interest Rates, and Policy Uncertainty

Tariffs typically increase the cost of imported goods, fueling inflation, which can prompt the Federal Reserve to consider interest rate hikes, which could further dampen demand for risk assets like crypto. Conversely, if tariffs slow economic growth excessively, the Fed may be compelled to lower rates to stimulate activity, which could support crypto prices by increasing liquidity.

Long-Term Outlook: Crypto as a Hedge?

If predicting the crypto market’s movement in the short term is nearly impossible, predicting what will happen in the long term proves to be even more challenging. However, some factors could be indicators of future outcomes and are, therefore, worth monitoring regularly, particularly since a long-term view could include many scenarios such as a change in US policies driven by a Democratic presidency, trade deals and routes that exclude the US, or even a successful and dominant America.

While the short-term impact of tariffs is negative due to volatility and risk aversion, the long-term picture is nuanced. Factors to consider include:

Hedge Against Instability: As economic uncertainty persists, some investors may turn to Bitcoin as a store of value or “digital gold,” especially in countries facing currency devaluation.

Decoupling from Equities: Historically, Bitcoin has shown the potential to decouple from traditional markets during periods of prolonged instability, acting as a safe haven.

Dollar Dominance: Tariffs could undermine the U.S. dollar’s role in global trade, potentially boosting demand for non-sovereign assets like Bitcoin for cross-border transactions

Relationship with China: Recent developments and historical precedents suggest that a negative outcome of US-China trade negotiations could have far-reaching consequences for these economies and global markets. This could affect global supply chains, economic growth, global governance, geopolitical stability, technology and standards, and cooperation opportunities.

However, if technology-related tariffs are set at a reasonable, or at least stable, rate, the effect on crypto markets. The U.S.-China relationship will likely evolve into a protracted strategic competition, characterized by economic decoupling, technological bifurcation, and ideological rivalry. While outright conflict is avoidable, the long-term effects will reshape global trade, security, and governance, demanding adaptive strategies from nations worldwide to navigate this new era of great-power dynamics.

Practical Strategies for Crypto Investors

Given the continuous heightened volatility and policy uncertainty, investors should consider the points mentioned above when planning for both the short and long term. In general, short-term strategies should be dynamic and proactive. Long-term strategy, on the other hand, should only be adjusted when trends become market-absorbed permanent changes.

Despite the changing and unpredictable landscape in the long run, there are a few things investors should consider when developing their strategies:

Diversifying Holdings: Spread exposure across multiple crypto assets, including stablecoins, to manage risk.

Managing Risk: Utilize stop-loss and take-profit orders to limit losses and secure gains during sudden market fluctuations.

Prioritizing Security: Hacks and crypto-related crimes are rising and will continue to be an increasingly growing concern. As cybercriminals become more creative and innovative, it is crucial to prioritize safe private key management, wallet and protocol interactions, and secure verification.

Monitoring Policy Developments: Stay informed about tariff negotiations and central bank responses, as these will drive market sentiment and liquidity.

Incorporating Artificial Intelligence: AI tools can provide more robust data-driven analysis and predictions. The playing field is not levelled, and an investment strategy that does not include AI tools, albeit carefully and monitored, will be on the losing side.

In conclusion, U.S. tariffs introduce significant short-term risks for crypto investors, marked by volatility, declining prices, and shaken confidence. However, these same policies may ultimately reinforce crypto’s appeal as a hedge against economic and monetary instability. Navigating this landscape requires vigilance, diversification, and robust risk management as the market responds to evolving trade and financial policies.