Bitcoin's price has taken a significant downturn, briefly slipping below the psychological $115,000 mark as investors reacted to a new tariff executive order signed by President Donald Trump. The move, reportedly set to take effect on August 1, has injected fresh concerns about global economic stability, prompting investors to move away from assets perceived as high-risk.
The tariff order, which follows previous trade policies, has created a climate of uncertainty. Economists note that such policies can lead to a decline in economic activity as firms postpone major decisions and delay hiring. While some markets initially had a limited response, the Bank of England's warning that sharply higher tariffs could trigger a rise in corporate defaults underscores the potential risks.
The crypto market, known for its volatility, is particularly sensitive to shifts in investor mood. Market sentiment is a key driver of crypto price movements, with events like regulatory announcements and macroeconomic shifts playing a significant role. Fear and greed are primary drivers behind Bitcoin's volatility. In times of uncertainty, investors tend to sell off riskier assets, a trend that impacts Bitcoin.
Historically, Bitcoin has shown a positive linkage to risk assets like stocks, especially during periods of turmoil. Since 2020, the rolling correlations of bitcoin returns have sharply increased with risk-on assets. This suggests that rather than acting as a hedge, Bitcoin often moves in tandem with traditional markets during economic stress. A recent study found that Bitcoin shows a stronger correlation with the Nasdaq index than with gold, suggesting it behaves more like a tech stock.
The latest order contrasts with previous actions from the Trump administration that were seen as crypto-friendly. A prior executive order titled “Strengthening American Leadership in Digital Financial Technology” was aimed at supporting the industry's growth. However, the current focus on tariffs appears to be overshadowing these earlier initiatives as broader macroeconomic concerns dominate investor sentiment. As markets digest the potential fallout from these tariffs, Bitcoin's volatility is likely to continue.