Trump’s new sanctions on China’s tech sector trigger $800M in crypto liquidations and a TradFi market downturn, with tariff threats fueling economic chaos.
Still, there might be a long-term silver lining in all this. Investors in Asia are increasingly investing in Bitcoin due to the de-dollarization of the currency and the potential for a trade conflict to divert capital from the USD and into crypto.
What is the potential impact of Trump’s China sanctions on cryptocurrency?
Trump’s tariffs have threatened a trade conflict between the United States and China in recent months, which has had a detrimental impact on the cryptocurrency market.
Derailed negotiations resulted in collapses, settled agreements represented prosperity, and rumors significantly influenced the entire market. TradFi is in a state of hysteria as Trump is reportedly contemplating sanctions against China unrelated to tariffs.
This sanctions plan is specifically designed to target the expanding technology sector in China, focusing on the subsidiaries of major conglomerates such as Huawei and semiconductor manufacturers.
According to Bloomberg, the purported sanctions are not expected to be implemented until June; however, the cryptocurrency market responded promptly. The total crypto liquidations have reached $827 million, Bitcoin has fallen below $105,000, and the entire market has experienced a 5% decline.
Markets were already apprehensive about the possibility of new tariffs and a cautious Federal Reserve before the announcement of the sanctions today. In early February, Bitcoin experienced a comparable decline of 6% amid concerns regarding a global downturn precipitated by a trade war.
These concerns were further exacerbated by today’s actions, resulting in a decline in equities and cryptocurrency.
The tariff negotiations between the United States and China were resolved less than a month ago; however, there is potential for new sanctions to rekindle the same recessionary concerns.
According to prominent Chinese economists, the United States is targeting China’s largest growth industries, which may serve as a precursor to additional trade conflicts. Escalation is a cause for concern for several valid reasons.
For instance, on May 29, the United States initiated measures to expand export controls on chip design software, specific chemicals, and industrial tools intended for China. These measures included the revocation of existing licenses and the obstruction of critical semiconductor inputs.
Risk-asset investors, who regard cryptocurrency as a volatile indicator of broader market sentiment, were alarmed by the increased tensions between the United States and China in the technology sector.
Another round of economic saber-rattling is sure to result in pandemonium; however, is there a potential benefit for cryptocurrency? The de-dollarization movement is acquiring momentum in Asia as the economic policies of the United States become more unpredictable.
Following this trend, economies are transitioning from the dollar to assets such as gold, the Chinese renminbi, and cryptocurrency.
In other words, investors throughout the entire region may elect to invest in Bitcoin rather than USD if the United States implements additional sanctions against China.
Nevertheless, this may be a marginal advantage, as the United States is more closely linked to the crypto market. There is a significant amount of discussion regarding the potential performance of cryptocurrency during a recession in the United States, and it is too early to provide a definitive response.
We expect that Trump will reconsider imposing further sanctions against China, as he did with tariffs. If this is the case, it could enable crypto markets to resume their normal operations, as they have been characterized by minimal volatility.
Nevertheless, crypto may exhibit some unanticipated behaviors in the event of another trade war escalation.
