China’s retaliation cements a bitcoin reset
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Even Fed Chairman Jerome Powell couldn’t get Bitcoin out of trouble.
After historic losses triggered by increasing trade tensions between the USA and China, cryptocurrency investors tried to get back on their feet. But it was hard work.
Riding on the tailwinds of a rising stock market and the prevailing sentiment that further interest rate cuts would fuel a long rally, Bitcoin recently rose to the top of the charts, setting itself up for a historically strong October. Even accounting for sharp losses in recent days, the digital currency is up more than 20% for the year, outpacing the gains of the benchmark S&P 500. But geopolitical tensions have shown how fragile such asset climbs can be.
Read more: What is Bitcoin and how does it work?
After months of an upward spiral with higher highs, investors now face a reset of speculative bets.
The spat between Washington and Beijing has forced a series of bullish markets on pause, rattled investors and reminded Wall Street that far from being a resolved issue, tariffs are still in play as a political weapon and a powerful destabilizer. But Bitcoin and other cryptocurrencies have been hit particularly hard.
Part of the decline in prices has to do with the excitement surrounding crypto investing, which means more aggressive bets using borrowed money. Some investors who had the chance to make huge gains became dangerously short as panic selling emerged. Wave of forced liquidations exacerbated the decline.
Bitcoin lost as much as 5% on Tuesday but pared losses as investors reacted to Powell hinting that another rate cut was possible when the Fed meets in two weeks. Still, the weight of unresolved disputes with China, which worsened just before the closing bell, kept investors from doing much even with the bullish catalyst.
The market-moving impact of the worsening trade dispute makes it difficult to declare the sell-off as a turning point for crypto or Bitcoin’s peak moment. If the dispute over critical mineral restrictions leads to a massive increase in tariffs on November 1, investors (cryptocurrency and others) will face further pain. And Bitcoin and its lesser altcoin peers do not have the corporate earnings to cushion the worsening macroeconomic picture.
However, if trade diplomacy is successful, stability may come soon. And there is the next peak ahead of us.
