The roller coaster ride in the crypto markets continued on Tuesday, as major altcoins like Ripple (XRP) and Dogecoin (DOGE) saw their prices rocket as much as 20% higher before retracing most of those gains. The initial surge came as traders attempted to “buy the dip” following the $2.2 billion market-wide liquidation event on Monday. However, the rebound proved short-lived, as China’s announcement of retaliatory tariffs on the United States quickly soured the optimistic sentiment.
Tariff Tensions Reignite
The crypto market euphoria turned to apprehension during the Asian trading hours on Tuesday, as the deadline passed for the U.S. and China to reach an agreement and avert the imposition of additional tariffs. In response to the 10% levy placed on $300 billion of Chinese goods by the Trump administration, China fired back with its own duties of 5% and 10% on $75 billion worth of U.S. products.
The re-escalation of the trade war between the world’s two largest economies sent ripples through the crypto markets, erasing the day’s earlier gains. Bitcoin (BTC) and Ethereum (ETH) pared their 4% rebounds to trade nearly flat, while XRP and DOGE also surrendered most of their double-digit percentage surges.
Stablecoin Demand Spikes
As trade tensions reignited, crypto traders increasingly turned to stablecoins like Tether (USDT) and USD Coin (USDC) to hedge against the volatility and economic uncertainty. Stablecoin volume saw a noticeable uptick as investors sought shelter from the market turbulence and potential currency fluctuations resulting from the tariff tit-for-tat.
“Despite more people considering Bitcoin as digital gold, it still largely trades like a risk asset. As a result, China’s retaliatory 10% tariff on the U.S. is pressuring crypto, much like other global risk assets such as equities.”
– Min Jung, research analyst at Prestro Research
Crypto’s Correlation Conundrum
The market reaction to the tariff news underscored the complex relationship between cryptocurrencies and traditional risk assets. While proponents have long touted Bitcoin as a safe haven akin to “digital gold,” its price action often remains closely tied to the sentiment in broader financial markets. This risk asset correlation leaves crypto vulnerable to macroeconomic shocks and geopolitical tensions.
Nevertheless, some analysts maintain that the long-term outlook for crypto remains bullish, particularly if governments pursue more digital asset-friendly regulations. Ben El-Baz, Managing Director of HashKey Global, noted:
“The U.S.-China tariff conflict could decrease the appetite for risk assets and further impact the positive sentiment that has been fueling a bull market in the crypto industry over the past year. However, the damage from the tariffs could still be made temporary if more crypto-friendly policies in the U.S. are set in motion.”
Market Hangs in the Balance
As the dust settles from the latest tariff salvos, the crypto market finds itself at a crossroads. On one hand, the re-escalation of the U.S.-China trade war threatens to weigh on risk asset prices and dampen the budding crypto resurgence. But on the other, the increasing economic uncertainty and potential currency volatility could drive more investors to seek alternatives like Bitcoin and stablecoins.
Key questions now loom large: Will the Trump administration’s hardball tactics prove to be a negotiating ploy that is eventually walked back, as with the tariffs on Canada and Mexico? Or does this signal the start of a protracted trade conflict with China that could dent global economic growth and roil financial markets?
For crypto traders, the answers to these questions could determine whether the market can resume its bullish momentum or if more choppy seas lie ahead. In the meantime, the renewed demand for stablecoins demonstrates how crypto continues to mature and offer new tools for navigating economic turbulence. Yet, as traditional markets once again hold sway over digital assets, cracking the crypto correlation conundrum remains a prerequisite for blockchain to fulfill its promise of building a new, decentralized financial paradigm.
The article author holds over $1,000 of various cryptocurrencies, in addition to providing liquidity to DEXs and DeFi protocols.
