What a turn of events it’s been for Bitcoin (CRYPTO:BTC) holders over the past few days. As I’m writing this, Bitcoin is in free fall, as investors are clearly trying to price in what the effects of Trump’s newly-imposed tariffs will be on a range of asset classes.
Stocks are tanking, with the futures market down more than 2% for the tech-heavy Nasdaq and the S&P 500 as well. But for even riskier assets, such as cryptocurrencies, were seeing incredible selling pressure, with the world’s largest cryptocurrency now quickly approaching a new one-month low (after recently minting a new all-time high this past month).
Indeed, it’s incredible to think about the fact that Bitcoin was trading above the $105,000 level as recently as January 31. As of late Sunday evening, so-called digital gold is now trading below the $93,000 level, giving up roughly a month of gains and spooking investors.
Let’s dive into what to make of this recent move.
Key Points About This Article:
- Bitcoin is among the asset classes that’s in free fall, suggesting tomorrow could bring pain to investors in a range of asset classes.
- Here’s what to know about this decline, and where the world’s largest cryptocurrency could be headed from here.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Bitcoin’s Decline Driven By Key Factors
Two investors in a disagreement
As is the case with any broad-based move in a given asset class, there are likely to be a number of underlying factors driving such a move. Such a situation does appear to be the case when it comes to this weekend’s move in crypto overall.
Bitcoin’s 7% 24-hour decline is indicative that we’re likely to see similar declines (though perhaps not to the same degree) in other asset classes tomorrow. We’ll have to see how broad-based this selling is, but if these factors continue to hold through tomorrow’s session, I do think Bitocin could be the canary in the coal mine for stocks and other assets (due to the fact that crypto is traded on a 24/7 basis).
For Bitcoin holders, one of the key valuation factors to be considered is the U.S. dollar index, which is inversely correlated to Bitcoin prices. The exact correlation continues to shift over time, but over the long-term, the stronger the U.S. dollar is, the worse it is for Bitcoin holders. On these announced tariffs, the DXY surged toward new recent highs, with many suggesting this momentum could take the dollar toward levels we haven’t seen in a very long time.
The reason this isn’t great for Bitcoin is that Bitcoin’s value is most often translated into U.S. dollars. When the U.S. dollar gets stronger, it takes more Bitcoin (or fractional Bitcoin) to buy a set amount of USD. Everything is relative in this world, and equities with significant international exposure (earnings outside the U.S. that need to be repatriated into USD over time) will likely feel similar effects.
Will This Trend Continue?
A crystal ball
I don’t have a crystal ball, and neither do you. No one really knows how long these tariffs will be kept on, the degree to which tariffs may be raised over time, and if Trump intends on pushing a tariff-first agenda to bring back manufacturing over a multi-year time frame. Many, including myself, believed that these tariffs would be mere negotiating tools. They weren’t.
If the U.S. economy slows because goods become more expensive and the global economy weakens, Bitcoin’s value in relation to the purchasing power and the amount of capital investors have to put to work in speculative assets could continue to be hit.
However, it Trump backs off of these tariffs, and we see growth and inflation expectations continue to improve as the economy continues to see more robust growth, maybe this will all be a short-term blip. That’s what makes markets, and that’s what’s going to make the next few weeks so intriguing for investors of all types.
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