The leading cryptocurrency in the world is currently facing unpredictable challenges in the near term.
Bitcoin‘s (BTC 2.43%) surged to an all-time high of over $109,000 on January 25. Factors such as the approval of its inaugural spot price exchange-traded funds (ETFs) last January, its recent halving event (which occurs every four years and reduces mining rewards by half) in April, three cuts in interest rates, and President Donald Trump’s electoral victory last November all contributed to a bullish resurgence in Bitcoin.
However, as of the latest update, Bitcoin’s value has decreased by over 20%, settling around $84,000. This drop can largely be linked to the Trump administration’s intentions to impose or raise tariffs, which have triggered concerns over rising inflation and sustained high-interest rates. Does this decline represent a buying opportunity, or is Bitcoin’s price set to fall further this year?
Image source: Getty Images.
How Are Trump’s Tariffs Affecting Bitcoin’s Price?
To comprehend the impact of Trump’s tariffs on Bitcoin, it is crucial to examine the interplay between inflation, interest rates, and the cryptocurrency market. When inflation escalates, the Federal Reserve typically raises its benchmark interest rates to stabilize the economy and prevent excessive price increases for everyday goods and services.
However, increasing interest rates often drive investors away from riskier assets—such as growth stocks and cryptocurrencies—and direct them toward safer fixed-income investments like CDs and Treasury bills, which provide relatively higher yields without risk. Consequently, Bitcoin’s price fell in 2022 alongside rising interest rates but saw a rebound in 2024 as rates began to drop.
Bitcoin enthusiasts had anticipated a continuing decline in interest rates in 2025 as inflation began to ease. Trump had also urged the Federal Reserve to aggressively lower rates. Nevertheless, his own proposals for increased tariffs could complicate matters.
Trump intends to impose 25% tariffs on products imported from Canada, Mexico, and the European Union, along with a 10% tariff on Canadian energy goods such as oil and electricity. These tariffs are slated to take effect on March 4. Canada and Mexico, the United States’ two principal trading partners, have announced intentions to enact retaliatory tariffs.
Additionally, China, already subjected to a 10% tariff on its imports in early February, may see those tariffs doubled on March 4. As the U.S.’s third-largest trading partner, China has also reacted with substantial tariffs on American goods.
This ongoing tit-for-tat is generating concerns about rising inflation, which could compel the Federal Reserve to halt its interest rate cuts or potentially raise rates. Such fears are again driving investors away from Bitcoin and other cryptocurrencies, even in light of the Trump administration’s ongoing efforts to ease regulations in the cryptocurrency sector.
The Uncertainty Makes Bitcoin Purchases Challenging
The Trump administration might be utilizing its tariff threats to negotiate more favorable trade agreements with its top trading partners. Many analysts believe that if all proposed tariffs and counter-tariffs are fully enacted, consumer prices in the U.S. could soar, leading to rampant inflation.
If this is merely a strategy to intimidate, then Bitcoin’s dip could represent a worthwhile buying opportunity. Influential Bitcoin advocates such as Ark Invest’s Cathie Wood and Block (XYZ -3.58%) founder Jack Dorsey remain optimistic about Bitcoin exceeding $1 million in the coming years as more institutional investors increase their involvement with this leading cryptocurrency.
However, if tariffs are enacted and the Federal Reserve reverses its course on interest rate cuts, Bitcoin could easily lose half its value before potentially doubling again. Notably, Bitcoin’s value has surged nearly 50% over the past year and has increased more than 850% in the last five years, leading many investors to consider taking profits if interest rates stop declining or start to rise.
Is Now the Right Time to Invest in Bitcoin?
As long as the threat of heightened tariffs looms over the market, Bitcoin may remain temporarily out of favor. Nevertheless, if you believe that Bitcoin’s value will increase over the next few decades, it might still be wise to accumulate some cryptocurrency during this recent dip. While it may not be advisable to fully commit to Bitcoin given the current volatility, gradually building your position during these fluctuations could help smooth out long-term returns through dollar-cost averaging and yield positive results in the years to come.
Leo Sun does not hold any positions in the stocks mentioned. The Motley Fool has investments in and recommends both Bitcoin and Block. The Motley Fool maintains a disclosure policy.
