Quick Review
- Due to President Trump's plan to impose high tariffs on imports from Canada, Mexico, and China, market risk aversion sentiment has risen, leading to a significant drop in cryptocurrency prices over the weekend.
- While most analysts believe that tariffs will be detrimental to cryptocurrencies in the short term, there are also views that tariffs may ultimately benefit this asset class in the medium to long term, driven by other catalysts.
After President Trump announced his tariff plan over the weekend, the 24/7 cryptocurrency market was the first to react, with prices plummeting significantly under the influence of risk aversion sentiment, and various analysts also expressed their views on the market trend.
Facing Trump's plan to impose a 25% tariff on imports from Canada and Mexico, and a 10% tariff on Canadian energy and Chinese goods, Bit once fell more than 10%, reaching a low of around $91,500, before rebounding, while other cryptocurrencies saw even more significant declines.
Ethereum prices plummeted about 36% from their Saturday highs, reaching a low of around $2,100 on Monday; Solana prices fell 24%, dropping to a low of $176 during the same period.
The meme coin market was hit the hardest, with the leading meme coin GMCI Meme index falling 40% in the past few days. According to data from The Block's official Trump Price page, meme coins related to the president have fallen 28% since Saturday, with a cumulative decline of 77% from their all-time high.
The White House stated that these import tariffs will take effect on Tuesday, citing the failure of these three foreign governments to curb the flow of drugs into the United States.
In a client report on Monday, analysts at research and brokerage firm Bernstein explained, "If tariffs mean a stronger dollar, higher inflation, and lower expectations of rate cuts in the near term, this will lead to reduced liquidity for global risk assets."
They added, "In the long run, as government debt and fiscal deficits increase globally, the risk of currency devaluation heightens, highlighting Bit's value relative to the dollar, which has been validated in Bit's long-term compounded growth history. However, in the short term, Bit is highly correlated with risk assets, so the sell-off in cryptocurrencies is not surprising."
However, Bernstein analysts led by Gautam Chhugani stated that after absorbing the initial risk-off shock, Bit should return to its fundamental trading. Although the market has seen sell-offs recently, Bit has maintained support around $90,000, primarily driven by strong institutional demand.
In January 2025, net inflows into the US spot Bit ETF reached $5.3 billion, in line with Bernstein's annual forecast of $70 billion. Meanwhile, MicroStrategy has increased its Bit holdings by $2.5 billion and issued $584 million in perpetual preferred shares to further expand its Bit purchases.
Analysts believe that the US is moving towards Bit as a national reserve, and ETF and corporate capital inflows should remain strong. Additionally, the repeal of SAB 121 may drive the development of Bit custody, trading, and preferred lending services supported by banks, Chhugani added.
In the long run, Bernstein analysts pointed out that the Trump administration views cryptocurrencies as a strategic tool for governance and national finance, aiming to control inflation through reducing fiscal deficits, cost-cutting in the government efficiency department led by Elon Musk, and increasing energy production.
While foreign governments may retaliate against the tariff policy by selling US Treasuries, such as China's move towards gold, Bernstein expects that sovereign institutions will accumulate gold and Bit as economic buffer tools. Additionally, as the US leads the policy shift towards a pro-cryptocurrency stance, more countries are expected to follow this trend.
Bernstein forecasts that Bit's price will reach $200,000 by the end of 2025.
Plaza Accord 2.0
Meanwhile, Jeff Park, the head of Alpha Strategies at Bitwise, holds a more bullish view, believing that Bit will "skyrocket" as this trade and currency war unfolds.
Park believes that Trump's tariffs are a temporary measure with a deeper purpose: to lower the dollar and long-term interest rates, ultimately driving Bit to soar. He built his argument around the Triffin dilemma - this dilemma points out that the dollar, as the global reserve currency, must be supplied in large quantities to facilitate international trade, but this practice forces the US into a long-term trade deficit, weakening its own economy over time.
According to Park's view, the US wants to maintain its ability to borrow cheaply while reducing the structural overvaluation of the dollar brought about by its reserve currency status. Therefore, tariffs are a means of negotiating a "Plaza Accord 2.0" (a multilateral agreement aimed at weakening the dollar by reducing foreign dollar reserves and shifting demand towards long-term US Treasuries).
He said, "In other words, Trump is trying to implement a 'yield curve control without yield curve control' strategy within the executive branch framework." "Undoubtedly, [Treasury Secretary] Yellen also supports this strategy, as she realizes she has been left with a mess by Yellin. Therefore, the US is paving the way for the holy grail of fiat alchemy: a weaker dollar and lower yields."
Park also believes that Trump's personal motivation is to support his real estate assets by lowering the 10-year Treasury yield, requiring more aggressive actions beyond just pressuring the Federal Reserve. He predicts that the result will be a weakening of the dollar and a decline in US interest rates, driving a surge in risk assets, particularly Bit. Due to tariffs driving inflation and disrupting global trade, foreign economies will face sluggish growth and currency depreciation, forcing citizens to seek financial alternatives. He stated, "Unlike the 1970s, the world today is on-chain, meaning Bit will become a safe haven for both sides of the trade war, leading to a violent acceleration in its price."
He concluded, "You haven't even begun to understand the astonishing long-term impact of the sustained tariff war on Bit."
However, not everyone in the cryptocurrency field agrees with Park's view, with analyst Alex Krüger believing that such aggressive tariffs are negative for Bit and risk assets, and the US economy may be affected.
Krüger pointed out that the market had expected the tariffs to be more gradual or delayed, and the current main concern is whether retaliation from abroad will further escalate the situation. He warned that persistent tariffs could hurt the US economy, weaken the dollar, and force the Federal Reserve to take a hawkish stance.
He said, "Without major upside risks from the tax cut and deregulation fronts, this would be enough to start a sustained bearish trend, but things have become very uncertain." "I still don't think the cycle top is in, and I expect the stock indices to hit new highs later this year. But the probability of being wrong has increased."
Former US Treasury Secretary and renowned economist Lawrence H. Summers went further, stating that Trump's tariffs "defy economic logic." However, billionaire hedge fund manager Daniel S. Loeb responded that a deeper second-stage analysis is needed to understand this move, and suggested that Trump may be using tariffs as a geopolitical tool rather than purely as economic policy, emphasizing that it may be used to combat drug smuggling.
Promoting Domestic Production
Others in the cryptocurrency industry hold a more positive view on another potential motivation behind President Trump's tariff imposition - promoting domestic production.
Aave founder Stani Kulechov stated, "Tariffs will raise funds for the US and increase domestic production. The tariff war will raise funds for other countries and increase their domestic production. This will put every country in a competition for domestic production."
Kulechov added: "This is not a recession, but a restructuring of the global economy. Cryptocurrencies will provide a hedge for those who see the uncertainty of stock market deconstruction in the transformation process, and DeFi yields will provide a hedge for those who want to reduce the uncertainty brought by the deconstruction of the bond market."
At the same time, Solana co-founder Anatoly Yakovenko offered a pragmatic view, arguing that while tariffs may not be the ideal choice, they may be the least harmful way to reduce the deficit. He said: "The US has a $20 trillion debt. The government needs to cut $10 trillion in spending and raise $10 trillion in taxes. Tariffs are a consumption tax that benefits domestic producers. This may be the least stupid way to make up the deficit."
Note 1: Triffin Dilemma
The Triffin Dilemma is a theory proposed by Belgian economist Robert Triffin in the 1960s, mainly describing the role and problems of the global reserve currency (such as the US dollar) in the international financial system.
According to the Triffin Dilemma, the global reserve currency (such as the US dollar) must be supplied in large quantities to facilitate global trade and capital flows. However, in order to supply enough currency, the country holding the global reserve currency (in this case the US) needs to run trade deficits continuously, i.e. imports exceed exports. This practice may lead to long-term fiscal deficits and debt accumulation in that country, ultimately weakening its economic foundation and even triggering a crisis of confidence.
Therefore, the Triffin Dilemma reveals two major contradictions:
Global demand: The world needs a reserve currency (such as the US dollar) to support international trade and capital flows.
Domestic economic contradictions: In order to meet global demand, the country must continuously supply a large amount of currency, which may lead to trade deficits and domestic economic instability.
This theory has sparked widespread discussion since it was proposed, especially in the context of the challenges to the dominance of global reserve currencies (such as the US dollar).
