Let's take a look at how tariffs are linked to cryptocurrency prices and the underlying mechanisms.
Written by: crypto.com
Translated by: Blockchain in Plain Language
On the grand stage of the global economy, policies in one area often create unexpected ripples, much like a stone thrown into water. Tariffs, as a long-standing tool for regulating international trade, have long been familiar in their impact on traditional financial markets. But with the rise of cryptocurrencies as a "new player," what is the relationship between trade policies and the prices of digital assets?
In early February 2025, U.S. President Trump announced new tariffs on Canada and Mexico, and the cryptocurrency market immediately "plummeted." This wave of decline sparked heated discussions: how exactly do government trade policies affect these cryptocurrencies that originally sought to "stand alone"?
This article will explore how tariffs are linked to cryptocurrency prices and the underlying mechanisms.
What are tariffs?
Simply put, tariffs are the "tolls" that a country charges on imported goods and services. When a country imposes tariffs on a certain imported product, the importer must pay extra money to the government of that country. This additional cost often ends up being passed on to consumers, resulting in higher prices.
The government collects tariffs mainly for several purposes:
To "earn money" for the government: Before income tax became popular, tariffs were a primary source of government revenue.
To protect domestic businesses: By making imported goods more expensive, consumers are more likely to buy domestically produced items.
To "negotiate": Countries use tariffs to negotiate trade with other nations, seeking favorable terms or pressuring other countries to change their policies.
To balance imports and exports: If a country buys significantly more than it sells, it may impose tariffs to reduce this "trade deficit."
Although tariffs may seem straightforward, their economic impact can be complex, affecting the value of money, stock market fluctuations, consumer spending, and even how a country manages its currency (monetary policy).
How do tariffs "stir the pot"?
To understand how tariffs affect cryptocurrencies, one must first grasp how they operate within the broader economic system. Once the government announces tariffs, the process begins:
Announcement: The government specifies which imported goods or services will be taxed, with rates typically calculated as a percentage of the product's value.
Collection: When these taxable goods enter the country, importers must pay the tariffs at customs.
Price increase: Importers will not absorb this cost themselves; they will pass it on to consumers, making the goods more expensive.
Consumer choices: When consumers see that imported goods have become more expensive, they may opt for domestic alternatives or simply buy less.
Chain reaction: Changes in consumer behavior will impact domestic producers, and related industries will also be affected, ultimately leading to shifts in the entire economy.
For example, if the U.S. imposes a 25% tariff on imported steel, American buyers will have to pay 25% more for foreign steel. This would benefit U.S. steel manufacturers, as their products become more competitive. However, American companies that rely on steel as a raw material may suffer due to increased costs.
These economic changes do not occur in isolation. Financial markets react to expectations regarding company profits, economic growth, inflation, and potential retaliatory measures from other countries in response to tariff announcements.
How have tariffs historically affected traditional financial markets?
The traditional financial market's response to tariff policies has been well-documented throughout history. Looking at past examples can help us understand how the cryptocurrency market might react.
Stock markets can be volatile: Once significant tariff policies are announced, stock markets typically become very unstable. During the U.S.-China trade tensions of 2018-2019, the S&P 500 index experienced several significant single-day drops whenever new tariff news broke. Industries directly affected by tariffs, such as manufacturing, agriculture, and retail, often saw the most pronounced stock price fluctuations.
Currency values can "flip": Tariffs often lead to changes in the value of different countries' currencies. If a country imposes many tariffs, its currency may appreciate in the short term due to reduced demand for foreign goods. However, if other countries retaliate with tariffs, the currency of the initially tariff-imposing country may depreciate because its goods become less marketable.
For instance, during the 2018 trade war, the Chinese yuan depreciated significantly against the U.S. dollar, partially offsetting the impact of U.S. tariffs on Chinese exports, making Chinese goods relatively cheaper even with tariffs.
Bonds become a "safe haven": During trade disputes, government bonds, considered relatively safe, become more popular as investors rush to buy them for protection. This typically leads to a decline in bond yields for countries perceived as economically stable.
Prices may rise: Tariffs directly increase the cost of imported goods, leading to inflation. This may prompt central banks to take measures, such as raising interest rates to control inflation—an action that usually impacts all financial markets.
Understanding the historical reactions of traditional markets to tariffs allows us to better predict potential responses from the cryptocurrency market.
How might tariffs affect the cryptocurrency market?
The relationship between tariffs and cryptocurrency prices is quite complex and continually evolving. Although the initial goal of cryptocurrencies was to escape government policy control, increasing evidence suggests that they are not entirely immune to macroeconomic influences.
Recent market reactions
As mentioned earlier, from late February to early March 2025, after President Trump confirmed new tariffs on Canada and Mexico, the cryptocurrency market experienced a downturn. Although the announcement was made on February 1, the actual implementation was delayed until March 4.
Once the news broke, Bitcoin's price noticeably dropped, triggering a series of market liquidations. This indicates that, despite cryptocurrencies initially aiming to be independent of government influence, investors are increasingly considering traditional macro policies when making trading decisions.
At the time, Trump stated that the U.S. was being "taken advantage of" by its trading partners, which justified the tariffs. However, the market's immediate reaction revealed that cryptocurrency investors are highly sensitive to these macroeconomic policies.
Possible channels of impact
Tariffs may influence cryptocurrency prices through several channels:
Deteriorating risk sentiment: Tariffs can create economic uncertainty, leading investors to perceive higher risks and shy away from holding assets like cryptocurrencies, which they consider more speculative, opting to sell instead. While some hope Bitcoin can serve as "digital gold" during economic turmoil, market behavior shows that many still view it as a high-risk asset, selling off at the slightest disturbance.
Strong dollar, weak coins: Historical data suggests that the price movements of Bitcoin and many other cryptocurrencies often move inversely to the U.S. dollar. If tariffs strengthen the dollar in the short term (which can happen), cryptocurrency prices often decline.
Reduced global capital flow: Trade restrictions may lead to decreased global economic activity and capital flow. When there is less money in the entire financial system, demand for speculative investments like cryptocurrencies may also decline.
Increased mining costs: For cryptocurrencies like Bitcoin that require "mining," if a country imposes tariffs on computer hardware (especially specialized mining chips, ASICs), the cost of mining will rise directly, potentially leading miners to earn less or even shut down, which could reduce the overall security of the Bitcoin network and indirectly affect its price.
Stricter government regulation: During times of trade tension, governments typically impose stricter regulations across various sectors. Investors may worry that countries engaged in trade wars might also subject cryptocurrencies to tighter controls.
Different cryptocurrencies, different reactions
Different cryptocurrencies may respond differently to tariffs:
Bitcoin: As the largest cryptocurrency by market capitalization, and with increasing institutional investment, Bitcoin is becoming more like a traditional risk asset during market downturns. This means that if trade tensions escalate, Bitcoin's price may decline.
Stablecoins: Those pegged to fiat currencies like the U.S. dollar may become more popular during trade disputes, as traders might prefer to hold stable assets while not completely exiting the cryptocurrency market, allowing for easier re-entry later.
Utility tokens: Cryptocurrencies associated with specific blockchain applications may be more directly affected by tariffs impacting their respective industries rather than by overall market sentiment.
Conclusion
The relationship between tariffs and cryptocurrency prices represents an intriguing intersection of traditional economic policy and emerging financial technology. Although the initial design concept of cryptocurrencies was to be independent of government monetary policy, market evidence increasingly suggests that they remain susceptible to macroeconomic forces, including trade policies.
The market's reaction in February 2025 to President Trump's announcement of tariffs on Canada and Mexico serves as a clear example. Therefore, cryptocurrency investors should closely monitor global macroeconomic policies. While cryptocurrencies have many unique advantages over traditional assets, they are still part of the global financial system and are sensitive to changes in global macroeconomic policies.
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