It is likely not the direct effect of Tariffs that are crashing markets but the wider impact they may yet have on the US and global economy. Tariffs are not just trade policies; they are economic levers that influence inflation, interest rates, and investor behavior.

For better or for worse, BTC exists within the Dollar-Based Financial System. It is priced in US dollars, any shifts in dollar strength, interest rates, or liquidity directly affect BTC’s purchasing power and attractiveness. BTC remains tied to the US economy and its currency. The current US tariff concerns are affecting crypto, tech stocks, and every major capital market.

This report unpacks the mechanisms behind this reaction, breaking down how tariffs work, their impact on inflation and capital markets, and why they are proving to be a bearish catalyst for Bitcoin.

Timeline of Trump tariffs in February 2025

BLX price on February 1st, 2025 – 93,512.46 BLX price on March 10th, 2025 – 79,929.44 % price drop = -14.5% Value price drop = -US$13,583

February 1, 2025: Broad Tariffs Announced

President Trump signed executive orders imposing a 25% tariff on all goods imported from Canada and Mexico, with a reduced 10% tariff specifically on Canadian energy products, including oil and natural gas. An additional 10% tariff was levied on Chinese imports, supplementing existing tariffs of up to 25% on various Chinese goods.

The US governments say this move was justified under the International Emergency Economic Powers Act (IEEPA), citing national emergencies related to illegal immigration and drug trafficking, particularly fentanyl. ​

February 3, 2025: Temporary Suspension of Tariffs

Following negotiations, the U.S. agreed to pause the implementation of tariffs on Canada and Mexico for 30 days. This decision came after both countries pledged to enhance border security and combat drug trafficking more effectively. ​

February 10, 2025: Steel and Aluminum Tariffs

The administration announced 25% tariffs on all steel and aluminum imports, eliminating previous country-specific exemptions. These tariffs are scheduled to take effect on March 12, 2025. ​

February 25, 2025: Proposed EU Tariffs

President Trump declared his intention to impose a 25% tariff on imports from the European Union, criticizing the bloc’s trade practices and suggesting that it was formed to disadvantage the U.S.

February 27, 2025: Increase in China Tariffs

An announcement was made to double the existing tariffs on Chinese goods from 10% to 20%, effective March 4, 2025. This escalation was attributed to ongoing concerns over illegal drug flows into the U.S. ​

March 4, 2025: Implementation of Tariffs

The previously announced tariffs on imports from Canada, Mexico, and the increased tariffs on Chinese goods officially took effect. In response, these countries have announced retaliatory tariffs on U.S. goods, signaling the onset of a broader trade conflict.

March 6, 2025: US delays tariffs on some imports from Canada and Mexico

President Trump signed an executive order postponing tariffs for one month, specifically targeting products from Canada and Mexico covered by the USMCA trade agreement. This move affects roughly 50% of U.S. imports from Mexico and about 36% from Canada under the terms of the deal.

March 10th, 2025: Trump warns that the US economy is set for a ‘period of transition’ when asked a question about the recessionary effects of the Tariffs. Markets sell off heavily as markets switch to risk-off.

The message appears clear. The Whitehouse is willing to accept short-term market pain for a stronger long-term US economy.

BTC falls below US$80,000 as a result.

What are Tariffs and how is the Trump administration using them

A tariff is a tax imposed by a government on imported goods and services.

The primary purpose of tariffs is to —

Protect domestic industries – Tariffs make imported goods more expensive and this encourages consumers to buy local alternatives.

As a trade policy & negotiation tool – Tariffs can be used to influence trade relations, retaliate against perceived unfair relationships, and to negotiate better trade terms.

President Trump is using tariffs as a bargaining chip against China, Canada, and Mexico. He is using tariffs to ‘punish’ the countries for allowing drugs to pass through them into the United States

Revenue generation – Governments can also use tariffs as a source of income.

The Economic Effects of Tariffs

Tariffs have direct effects on the agents within the country they are being enforced. For the United States, President Trump’s tariffs mean —

Higher prices for consumers – Tariffs increase the cost of imports. Tariffs can trigger a particularly dangerous type of inflation called cost-push inflation. This is when production costs, like wages and raw materials rise, leading to higher prices for consumers. Since so many US companies are reliant on imports from countries like China at some stage in their supply chain, it seems inevitable that their production costs will rise and be passed on to consumers. Protection of Domestic industries – Domestic producers benefit as their goods become relatively cheaper than imports, this can, however, lead to inefficiencies if local industries feel they are protected and rely on these policies to be competitive Reduced trade and economic growth – Higher tariffs reduce imports and affect international relations. They can lead to retaliatory tariffs from other countries, which can stifle economic growth.

Tariffs are inflationary, which is likely why they have had such a brutal impact on capital markets. Concerns over the effects of the Trump Tariffs have dragged down tech stocks and crypto since they were first crystallized. The US tariffs against Canada are set to be implemented on March 4th.

The relationship between the daily open BTC/USD price and the Tariff related news events

Tariffs trigger inflation, potentially a hawkish monetary policy switch

Inflation is the rate at which the general price level of goods and services in an economy increases over time. It reduces the purchasing power of money, and a higher rate of inflation is generally painful for consumers in an economy to endure.

Inflation negatively affects prices in capital markets. Particularly on asset classes with higher risk profiles. This is because it impacts interest rates, investor sentiments, and corporate earnings.

Central banks, in this case, the US Federal Reserve, are likely to raise interest rates to control tariff-driven inflation Higher interest rates increase borrowing costs for companies, reducing their profitability and their appetite for investment Investors are more likely to shift from higher-upside investments like crypto and equity towards fixed-income assets like bonds. This is because bonds now have a higher yield, making them more attractive compared to risk assets. Inflation also directly affects consumer and investment spending When inflation is high, consumers cut back on spending due to higher prices Businesses also reduce capital investments because capital is more expensive This can lower corporate revenues, and this can drive stock prices down. Inflation can also create uncertainty about future economic conditions In these market conditions, with high inflation and potential interest rates, investors tend to demand higher risk premiums making stocks and other assets less attractive This often results in a flight to safety, as investors move funds into gold, cash, or bonds. Bitcoin is sometimes considered a safe haven. With the price of BTC recently hitting all-time highs it is more likely to be sold and for holders to take profits from long-held investments. Inflation can also potentially be positive for assets like BTC because it can weaken the price of the U.S. dollar If 1 BTC can buy you US$100,000 continual inflation can lead to a weaker USD and then the 1 BTC can buy you US$105,000 a year later if the inflation rate is 5%. This is assuming the price of BTC stays constant. Longer-term macro view and other considerations

US Core inflation data for the last year shows that inflation has steadily declined but still hovers above the target rate. Where do we go from here with interest rates? This may depend on inflation data.

The chart above displays the relationship between the daily USD open price of BTC and the Fed Funds rate set by the US

The relationship between interest rates and asset prices, including Bitcoin, is not strictly deterministic but rather directional. It is not merely the absolute level of interest rates that drives price movements. Rather, it is the perception of the trajectory of interest rates—whether they are expected to rise or fall—that influences market sentiment and momentum.

For instance, a shift to a 4% interest rate has different implications depending on whether the previous rate was 4.5% or 3.5%.

The United States Federal cut interest rates in the last 3 months of 2024 (25 basis points each) but held them steady at 4.5% following their first meeting in 2025 .

The Fed Monetary Policy report for February 2025 was recently released. It indicates that the US Central Bank is cagey following the interest rate cutting of 2024. “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.” This suggests that the Fed presently has a ‘play it by ear’ approach to monetary policy in 2025.

If tariffs were to jack up inflation above target rates, then interest rates would likely react to this occurrence. The Fed appears to be playing its cards close to its chest right now.

We can contrast this with a country like New Zealand, which on February 19th cut interest rates in the country by 50 basis points to take them down to ~3.75%. The statement for this month from the Reserve Bank of New Zealand was much more aggressive and optimistic than its American counterparts. “Economic activity is expected to recover over 2025, as lower interest rates and stronger earnings for some exporting industries support demand,” the bank explained. “If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025,” it continued. The OCR or Official Cash Rate is the New Zealand equivalent of the Fed Funds rate.

The market since February and the initial announcement has appeared to again react to perceived direction as opposed to the interest rate change itself. The Trump tariffs MAY create inflation, which MAY lead to the US Central Bank pushing rates up and MAY slow down the economy. The Trump Tariffs have pivoted the direction of the US economy. It now seems more likely that the US economy will face economic challenges, driven by the US potentially isolating itself from trade partners, after a period of apparent economic stability towards the end of 2024.

This view crystallized in the third week of March when President Trump, when asked about the recessionary effects of the tariffs, confirmed that they may force the US economy into a ‘Period of Transition’.

Another new White House policy stream is also having an effect on digital asset prices. On January 23rd, US President Donald Trump signed an executive order that has the aim of “Strengthening American Leadership in ’Digital Financial Technology’”.

“The digital asset industry plays a crucial role in innovation and economic development in the United States, as well as our Nation’s international leadership,” the order states.

“Protecting and promoting the ability of individual citizens and private-sector entities alike to access and use for lawful purposes open public blockchain networks without persecution,” is an example of its goals. Most of the order is dedicated to establishing technology and rules around crypto and its development in the U.S.

One of its most important aspects is the creation of a working group to consider a national digital asset stockpile, “potentially derived from cryptocurrencies lawfully seized by the Federal Government through its law enforcement effort.” The EO created an immediate buzz and bullish momentum for digital assets.

“A U.S. Crypto Reserve will elevate this critical industry after years of corrupt attacks by the Biden Administration, which is why my Executive Order on Digital Assets directed the Presidential Working Group to move forward on a Crypto Strategic Reserve that includes XRP, SOL, and ADA,” US President Trump expounded, on March 2nd, via the Truth Social media platform. This crystallized some of the outlines of the executive order. About an hour after the initial post, Trump clarified — “And, obviously, BTC and ETH, as other valuable cryptocurrencies, will be the heart of the Reserve. I also love Bitcoin and Ethereum!”

However, on Friday last week David Sacks, Trump’s AI and Crypto Czar, revealed that Trump’s comments were simply expository and not a firm commitment towards creating a reserve. This dampened much of the positive momentum that Trump’s initial post created.

Brave New Coin has previously covered the variety of factors that influence the price of BTC, including fundamental onchain metrics and miner activity.

The price of Bitcoin can be affected by regulatory decisions like the approval of spot Bitcoin ETFs in the United States, fundamental events like the halving which affects the flow of new BTC, and price movements that may be tied to historical price activity.

The most obvious and clear factor driving the price of BTC is demand to use it, which can be measured by adoption. Are people using BTC as an alternative for money? Is it being stored away for a rainy day like gold?

Is there a demand to use BTC, outside of money, because of the utility of an immutable ledger of accounts? An example of this is the Ordinals phenomenon.

What’s Driving Bitcoin Adoption in 2025

Bitcoin company River Financial in February 2025 published a report titled ‘What’s Driving Bitcoin Adoption in 2025’. Much of the report is focused on the recent growth of the Bitcoin network. It reports a surge in development activity, the decentralization of hashrate, and the increase in the usage of BTC for high-value transactions.

They note that in previous cycles accumulation was driven by individuals but in 2024 institutions and ETFs were the primary accumulators. They also report that 52% of the top 25 Hedge Funds and RIAs own BTC ETFs.

River reports that more public companies are holding BTC as treasury assets than ever before, larger-scale Bitcoin custody solutions are improving, and the list of nation-states embracing BTC is growing rapidly.

There are clearly agents across the world who want to buy crypto and these adoption factors sit behind headline macro events like the Trump Tariffs or a crypto reserve. Brave New Coin has also discussed how much speculation is built into the price of Bitcoin because of optimism surrounding what it could be rather than what it is.

Today, in the short term, growth in BTC usage affects prices less than government policy which could affect how much money agents will have to buy BTC tomorrow.

The Trump tariffs may not be the only factor in recent price volatility but certainly, it appears to be a powerful price factor.

There are also many other factors that affect the price of BTC — Other news events, onchain activity, order book activity, liquidity, regulatory environment, and more.

Conclusion

The Trump tariffs have had a significant impact on global financial markets, and their effect on Bitcoin highlights the cryptocurrency’s deep entanglement with macroeconomic forces. While tariffs are typically viewed as tools of trade policy, their inflationary pressures and implications for monetary policy make them critical variables in capital markets. As the U.S. economy reacts to these tariffs, the Federal Reserve’s response will be a crucial determinant of market conditions—particularly in the realm of risk assets like Bitcoin.

Ultimately, the Trump tariffs serve as a reminder that Bitcoin, despite being a decentralized asset, does not operate in isolation. Its valuation is influenced not just by fundamental adoption and network growth, but also by government policy, global liquidity conditions, and investor sentiment.

It seems clear now, that the Trump administration is relatively unconcerned if markets slide as a result of Tariff fears. They appear willing to engage in this trade if it means a stronger long-term domestic manufacturing industry. Trump has pointed to China’s 100-year plan, as he has tossed aside concerns around the short-term effects of Tariff news. BTC traders need to be prepared for a defensive market in the short term. The silver lining is like many things, the pain should only be temporary.