The escalating trade war has hit both Bitcoin and stocks, as traders reassess risk assets and turn to gold.
The recent turn of events in the global economic landscape has sent shockwaves through the cryptocurrency and stock markets, leading to a dramatic re-evaluation of risk assets. A staggering $1 trillion has been stripped from the cryptocurrency market cap amid rising fears of a U.S. trade war that has catalyzed traders to sell off Bitcoin (BTC) and flock towards the historical safety of gold (gold). According to a comprehensive Binance report, the escalation of U.S. tariffs is prompting widespread apprehension in both the cryptocurrency space and the stock market.
Recently, the Trump administration announced the imposition of a broad 10% tariff, set to take effect on April 5, impacting all countries involved in trade with the U.S. However, certain nations are absorbing even harsher penalties, with China facing a 34% tariff, the European Union receiving a 20% tariff, and Japan encountering a 24% tariff. These sweeping tariffs come at a time when global trade relationships are already fragile, further intensifying the uncertainty among traders and investors alike.
This aggressive tariff strategy doesn’t just impact specific goods; entire sectors are facing new levies, with the auto industry suffering the brunt of an additional 25% duty. As a result of these developments, the average U.S. tariffs have surged to 18.8%, marking the highest levels since the infamous Smoot-Hawley Tariff Act of 1930, a legislative hallmark that exacerbated the Great Depression.
As traders react to these mounting pressures, the cryptocurrency market has experienced a significant downturn. Since February 2025, the market cap has plunged by 25.9%, equating to a monumental loss of $1 trillion. Bitcoin has seen a 19.1% decline, while Ethereum has suffered even more severely with a staggering 40% drop. Lesser-renowned memecoins and AI tokens have endured the worst, crashing over 50% overall.
Bitcoin acted more like a risk asset, less as a hedge
Intriguingly, Bitcoin’s recent performance has revealed its increasing correlation with the S&P 500. This correlation coefficient has shifted dramatically from –0.32 to 0.47, indicating that Bitcoin has started behaving more like a typical risk asset rather than a hedge against market downturns. This change in dynamic raises questions about Bitcoin’s previous status as “digital gold,” provoking concern among investors who seek refuge in digital currencies during turbulent economic times.
In contrast, gold has once again solidified its position as a safe haven against market risks and inflationary pressures. Remarkably, gold prices have risen 10.3% since February, while its correlation with Bitcoin has taken a notable nosedive to –0.22. This pivot stands in sharp relief against a backdrop of rising inflation expectations, estimated at an annual rate of 3–5%, thus further reaffirming gold’s enduring role as a reliable asset in economic uncertainty.
The growing negative correlation between Bitcoin and gold undermines the narrative that championed Bitcoin as a hedge against inflation. This shift is significant; institutions may begin to rethink their strategies regarding Bitcoin as a defensive asset within their portfolios, potentially leading to a greater retrenchment from the asset class as traders seek stability amidst turmoil.