Bitcoin wins, fiat loses. In any case, Bitcoin will rise.

Written by: Matt Hougan, Chief Investment Officer of Bitwise; Jeff Park, Portfolio Manager and Head of Alpha Strategies

Translated by: 0xjs@Golden Finance

The cryptocurrency market saw a significant drop in recent days, with Bitcoin falling about 5%, while many other assets experienced even larger declines. As I wrote this article on Monday morning in London (where I was attending a conference), Ethereum was down 17%, Solana was down 8%, and XRP was down 18%.

The direct cause of the drop was concerns over a global trade war. Over the weekend, President Trump imposed a 25% tariff on most imports from Canada and Mexico, and a 10% tariff on China, prompting these three countries to announce corresponding countermeasures. This move led to the dollar rising more than 1% against other major currencies and caused significant declines in stock futures and cryptocurrency prices.

Of course, since this is cryptocurrency, the troubles don't stop there.

In the cryptocurrency space, the widespread use of leverage often exacerbates market volatility (especially during low liquidity weekends). Negative news events lead to price declines, which cause leveraged traders to liquidate positions through selling, resulting in continuous price drops that force more people to close their positions. This process continues until the leverage is exhausted.

Sure enough, within 24 hours from Sunday night to Monday morning, the largest liquidation event in cryptocurrency history occurred, with as much as $10 billion in leveraged positions being liquidated.

Bitwise investors tend to be long-term investors, so these short-term, leverage-driven pullbacks are viewed by most as opportunities rather than threats—as long as the news events are indeed short-lived.

So, is that really the case? This is a trillion-dollar question.

My colleague Jeff Park leads Bitwise's Alpha team and is one of the sharpest minds at the intersection of macro and cryptocurrency. His view is that Trump's economic game plan, including the implementation of tariffs, is actually a long-term positive catalyst for Bitcoin.

Below, I invite Jeff to share his perspective:

The result is: Bitcoin wins, fiat loses. In any case, Bitcoin will rise.

To understand the long-term impact of tariffs on Bitcoin, two things need to be kept in mind: 1) the "Triffin Dilemma," and 2) President Trump's long-term goals.

First, the "Triffin Dilemma." Named after the Belgian-American economist who introduced the concept in the 1960s, it refers to the benefits and drawbacks of being the world's reserve currency.

On the negative side, the dollar is structurally overvalued because other countries need it as a reserve currency (regardless of its price), and the U.S. must maintain a trade deficit to supply dollars to the world. On the positive side, the U.S. government can borrow at a lower cost than it "should" because there are continuous buyers for its debt.

Trump aims to eliminate the negatives while retaining the positives.

How does Trump plan to achieve this? Tariffs.

Tariffs are typically a temporary negotiating tool used to achieve goals—this seems to be the case this time. We believe the ultimate goal is to reach a multilateral agreement that weakens the dollar without raising long-term interest rates. One viable approach is to force countries to reduce their dollar reserves while extending the maturity of U.S. debt. This would suppress long-term interest rates while supporting the U.S. manufacturing base.

But how do you get countries to agree to this? You have to force them to the negotiating table.

The U.S. has done this before. In 1985, West Germany, France, the UK, and Japan signed the famous Plaza Accord, which called for an orderly depreciation of the dollar against other currencies. This agreement greatly boosted U.S. manufacturers, who had previously struggled to compete on the global stage due to a strong dollar. (Why did these countries sign the agreement? One reason was—yes, you guessed it—the fear of tariffs.)

If Trump can achieve this outcome through bullying tactics, then there is no asset more favorable than Bitcoin. Lower interest rates will stimulate risk appetite among U.S. investors, driving up Bitcoin prices. Abroad, countries will face economic weakness and will resort to traditional economic stimulus measures to compensate, further pushing up Bitcoin prices.

What if he fails? What if we face a prolonged trade war? We firmly believe that the resulting economic weakness will lead to money printing on a scale greater than ever before. Historically, such stimulus has been very favorable for Bitcoin.

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