Bitcoin Volatility Surges as Trump Tariffs Spark Dollar Decline
2min read Bitcoin has experienced significant volatility over the past week, with traders reacting to the tariff policies of U.S. President Donald Trump. The bitcoin price initially plummeted along with stock markets in early April but has since stabilized. Analysts are now focusing on a potential "dollar confidence crisis" as the ice U.S. dollar index experiences its worst day since 2022.
According to ING analysts, including Francesco Pesole, the current situation is worse than the 1971 collapse of the gold standard. The escalating trade war has led to a sharp decline in the U.S. dollar index, which measures the dollar against a basket of global currencies. This decline has put the dollar on course to return to its 2022 range, raising concerns about the U.S. brand and the stability of the dollar-centric international trade and financial system.
Marc Chandler, the New York-based chief market strategist for Bannockburn Global Forex, described the current situation as worse than the 1971 collapse of the gold standard. He emphasized that the biggest damage is to the U.S. brand. The chaos and uncertainty of the escalating tariff war could help bitcoin close the gap on gold’s $22 trillion market capitalization, according to a report from bitcoin and crypto asset manager Grayscale. The report suggests that disruptions to the dollar-centric international trade and financial system could result in more reserve diversification by central banks, including into bitcoin.
Historical data shows that stagflation tends to be negative for traditional asset returns and favorable for scarce commodities like gold. During the 1970s, the price of gold appreciated at an annualized rate of about 30%, significantly above the rate of inflation. However, bitcoin, sometimes called digital gold due to its scarcity, has so far failed to follow gold higher as traders panic-sell assets in the face of a looming global trade war, with the gold price hitting a record, all-time high this week.
Deutsche Bank’s global head of FX research George Saravelos noted that the market is re-assessing the structural attractiveness of the dollar as the world’s global reserve currency and is undergoing a process of rapid de-dollarisation. The dollar’s decline is seen by some as boosting the bitcoin price as traders bet bitcoin will follow in gold’s footsteps, performing as a safe haven asset. Alex Kuptsikevich, the FxPro chief market analyst, said in emailed comments, “a falling dollar supports cryptocurrencies.”
LMax Group’s market strategist Joel Kruger highlighted that bitcoin’s correlation with U.S. equities may have garnered excessive attention, while its ties to Federal Reserve policy and the U.S. dollar’s trajectory deserve greater scrutiny. Trump has been pushing Fed chair Jerome Powell to cut interest rates as he embarks on his global trade war, fuelling expectations the Fed could be forced to cut interest rates through 2025, either in response to a tariff-led economic slow down or because Trump has fired Powell. Kruger noted that market dynamics are shifting as the Fed’s outlook adjusts to pressures from U.S. trade policy, with expectations of steeper rate cuts in 2025 now taking hold. This pivot toward a more accommodative stance is poised to narrow yield differentials, weakening the dollar’s appeal and, in turn, creating a supportive tailwind for bitcoin.
Ask Aime: How will the recent volatility in Bitcoin affect the U.S. dollar's status in the international trade and financial system?
