You would be forgiven for assuming that Bitcoin’s price is a direct result of Elon Musk’s tweets or the new hot DeFi trend. Think again. The true puppet master pulling the strings from behind the curtain is the burgeoning, at times boiling, US-China trade war. As one of the few analysts based out of Tokyo, I’ve watched this geopolitical tug-of-war affect Bitcoin in ways that most Western observers do not fully appreciate. Here’s why Bitcoin’s future is inextricably linked to this global power struggle:

Trade Tension Fuels Bitcoin's Safe-Haven Appeal

The focal narrative thus far has been that Bitcoin is digital gold, a hedge against inflation and macroeconomic uncertainty. What fuels that uncertainty? A good portion of it can be traced directly to the chaos and uncertainty that has characterized US-China trade relations over the last few years.

Think about it: when tariffs are threatened or imposed, businesses scramble. Supply chains are disrupted. Currencies fluctuate wildly. This creates the perfect breeding ground for anxiety, and anxious investors flee to seek safe havens. Both the S&P 500 and US Dollar Index will enjoy short-lived uplifts from last week’s optimistic trade developments. Yet there is an underlying jitter that remains on Wall Street. The smart money understands these kinds of deals can be really fragile.

With its censorship-resistant and deflationary properties, Bitcoin stands out as a more appealing option when other markets seem unstable. This is where the magic happens. The longer the trade war continues to rattle global markets, the longer Bitcoin’s narrative as a safe-haven asset becomes solidified. This isn’t purely a fear-based strategy, it’s about realizing there is a better choice.

Dollar Strength Dented, Bitcoin Gains Traction

The US Dollar's dominance is being challenged. The trade war is a key factor. When the US cites unfair practices and retaliates by putting tariffs on Chinese goods, it may appear to be a victory for American businesses. Dollar short-termism is corrosive and ultimately dollar-negative. It further complicates global trade flows and risks triggering retaliatory measures.

As a side note, keep in mind that Bitcoin is usually measured in terms of dollars. A weaker dollar makes Bitcoin relatively cheaper for investors who are holding other currencies. A greater affordability leads to greater demand and greater demand can often lead to a greater price. If the trade war goes on to weaken the dollar further, countries and corporations will begin diversifying their reserves with Bitcoin. This change would set off a very large price increase.

Capital Flight From China = Bitcoin Boost?

China has strict capital controls. Where there’s a will there’s a way. Our ongoing trade war is escalating. Chinese investors, concerned with the devaluation of the Yuan and the grisly economic scene in general, are looking for ways to relocate their money outside of the country.

Considering its extreme popularity and volatility Bitcoin could be a helpful route towards avoiding these controls. Tracking it can be difficult. Moving it around digitally is much simpler and it offers some degree of anonymity—far from foolproof of course. It’s difficult to quantify exactly how much Chinese capital flows into Bitcoin. Still, both anecdotal evidence and what we’re witnessing in the market suggests that this flow is the biggie. Bitcoin could become a great release valve for Chinese capital. This ability in large measure pushes its cost through the roof.

Trade War News Drives Crypto Volatility

Each announcement and missive regarding US-China trade negotiations sends shockwaves through the crypto market. Even the faintest whiff of positive or negative movement sends investors into a tizzy. Why? Because these events directly impact investor sentiment.

Positive news might lead to a temporary dip in Bitcoin as investors flock back to traditional assets, but negative news often triggers a surge as they seek safety in crypto. This volatility — though unnerving for some — creates opportunities for informed, nimble traders. By learning how to interpret the relationship between trade war developments and Bitcoin’s price changes, you can start to make money from these changes. Stop being just an observer, and start being an engaged actor.

Future Scenarios: Bitcoin's High-Stakes Game

The future of the US-China trade war is uncertain, but here are a few potential scenarios and their likely impact on Bitcoin:

  • Scenario 1: A Comprehensive Trade Deal: This could lead to a temporary dip in Bitcoin as risk appetite returns to traditional markets. However, the long-term impact might be positive if it fosters global economic stability and reduces uncertainty.
  • Scenario 2: Escalation of Trade Tensions: This is the most bullish scenario for Bitcoin. Increased tariffs, sanctions, and geopolitical tensions would likely drive investors towards safe-haven assets, pushing Bitcoin's price to new heights.
  • Scenario 3: Continued Stalemate: This is the most likely scenario. The ongoing uncertainty and volatility would continue to fuel Bitcoin's price fluctuations, creating opportunities for traders and solidifying its role as a hedge against geopolitical risk.

To be sure, Bitcoin’s fate does not rest based narrowly on the trade war between the US and China. As an investor, this geopolitical conflict is arguably one of the most important factors that you cannot ignore. Monitor the headlines very closely, educate yourself on what’s going on behind the scenes, and be ready to adjust your approach to align with those changing circumstances. The future of Bitcoin—and your portfolio—might just hinge on it.

I am an analyst and this is my opinion. It is not financial advice. Cryptocurrency trading and investing is very risky and you should do your own research before making financial decisions.