The US market suffered significant losses on Thursday after President Trump announced extensive new trade tariffs on China. As Trump stokes the possibility of a trade war between the two countries, this presents the opportunity for wide-scale adoption of cryptocurrencies as a medium of exchange.
In the realm of finance, speculation is everything and uncertainty is the adversary. The tariffs enacted by the US could cost Chinese exports over USD 50 billion per year, and it is unlikely the Chinese government will not take action in retaliation. The Dow Jones has already plummeted over 700 points since the announcement, while the impending response from China is likely to agitate international markets further. Late Thursday, China’s embassy in Washington released a statement, saying “China’s not afraid of, and will not recoil from a trade war.”
The tariffs have been designed to tackle the supposed undercutting of US labor by China. While this provides a valid resolution to the issue in theory, often tariffs unintentionally lead to suffering in other areas of the economy. US economists have reported it is the likely the American consumer that will bear the costs.
Might an unstable dollar make cryptocurrency attractive?
When the effects are felt, speculation suggests the US economy will deteriorate, resulting in the weakening of the USD. When a fiat currency experience unstable conditions, a popular option is to store wealth in alternative areas, such as cryptocurrencies. Individuals and businesses alike may turn to the use of cryptocurrencies to avoid the volatile conditions of the US market.
Considering the extensive levels of international trade that the US conducts, this could bring an entirely new market of cryptocurrency users on a global scale. It is likely that once cryptocurrencies are adopted by users, the significant benefits attached to using them will encourage them not to return to fiat currency.
Additionally, transactions made with cryptocurrencies are not subject to any tariff levies, although indeed the legality of these cryptocurrency exchanges might come into question.
There are factors that could hinder the successful widespread adoption of cryptocurrency, however. Depending on the severity of the effects of the trade war, a sustained bear market could be triggered. This could lead to a lack of liquid investment funds to inject into the cryptocurrency market, bringing it into a similar situation as the potential bear market of the US economy.
Some cryptocurrency pundits make the argument that as financial market fears increase, the price of Bitcoin will decrease and vice versa.
Whatever the results of the potential trade war, it will be interesting to keep a close watch on the reaction of the cryptocurrency market to the turbulence of such two prominent fiat currencies.