The leading cryptocurrency in the world is currently grappling with uncertain short-term challenges.
Bitcoin‘s (BTC 7.10%) value soared to its all-time peak of over $109,000 on January 25. Key events such as the approval of its first spot price exchange-traded funds (ETFs) last January, the recent halving (which reduces mining rewards by half every four years) in April, three interest rate cuts, and the election victory of President Donald Trump last November reignited enthusiasm among investors in the leading cryptocurrency.
However, as of this moment, Bitcoin’s price has fallen over 20% to around $84,000. This decline is primarily linked to the Trump administration’s intentions to implement or raise tariffs, which are igniting concerns about increased inflation and higher interest rates. Does this correction signal a buying opportunity, or should we anticipate a deeper drop in Bitcoin’s price this year?
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How are Trump’s tariffs impacting Bitcoin’s price?
To grasp the influence of Trump’s tariffs on Bitcoin, it’s essential to understand the interplay between inflation, interest rates, and the cryptocurrency market. When inflation escalates, the Federal Reserve tends to increase its benchmark interest rates to stabilize the economy and prevent the rapid rise in the prices of goods and services.
Nonetheless, rising interest rates also steer investors away from riskier investments—such as growth stocks and cryptocurrencies—and toward safer options like CDs and Treasury bills that provide decent risk-free returns. Hence, Bitcoin’s value dropped in 2022 as interest rates climbed but rebounded in 2024 when rates began to decline.
Bitcoin advocates anticipated a continuation of declining interest rates in 2025 as inflation began to ease. Trump had also publicly urged the Fed to cut rates aggressively. However, his proposed increases in tariffs could complicate that outlook.
Trump intends to impose a 25% tariff on products from Canada, Mexico, and the European Union, along with a 10% levy on Canadian energy goods such as oil and electricity. These tariffs are set to take effect on March 4. Canada and Mexico, which are the U.S.’s largest trading partners, have vowed to respond with retaliatory tariffs.
Additionally, China, already impacted by a 10% tariff on its imports in early February, could face a doubling of those tariffs on March 4. As the U.S.’s third-largest trading partner, China has also retaliated with substantial tariffs on U.S. goods.
This chain of threats is fueling worries about increased inflation, which could compel the Fed to halt its interest rate cuts or potentially raise rates again. Such fears are driving investors away from Bitcoin and other cryptocurrencies, even as the Trump administration seeks to relax regulations within the cryptocurrency sector.
These uncertainties complicate Bitcoin purchases
The Trump administration may simply be using its threats of higher tariffs as leverage to negotiate better trade agreements with top trading partners. Numerous analysts believe that should these proposed tariffs and retaliatory tariffs be fully enacted, consumer prices in the U.S. could skyrocket, potentially leading to even higher inflation.
If this is merely a strategy of intimidation, then Bitcoin’s retracement could present a solid buying opportunity. Notable Bitcoin supporters like Cathie Wood from Ark Invest and Block (XYZ 1.59%) founder Jack Dorsey continue to assert that Bitcoin could surpass $1 million over the next few years as institutional investors increase their stake in the premier cryptocurrency.
On the other hand, if those tariffs come into play and the Fed reverses its interest rate cuts, Bitcoin’s price could easily be cut in half before it recovers. After all, Bitcoin’s value has still surged nearly 50% in the past year and has risen over 850% in the last five years, meaning many investors could be inclined to take profits if interest rates stall or start to rise.
Should you invest in Bitcoin today?
Bitcoin will likely remain unpopular as long as the specter of higher tariffs looms over the market. However, if you anticipate Bitcoin’s price will increase over the coming decades, it might still be prudent to gradually accumulate some of the cryptocurrency during its recent downturn. It would not be wise to commit entirely to Bitcoin at this volatile time, but incrementally increasing your holdings through the fluctuations could help stabilize your long-term returns via dollar-cost averaging and yield benefits in the upcoming years.
Leo Sun has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Block. The Motley Fool’s disclosure policy is available.
