Why Bitcoin Wins From Trump’s Tariff Gambit

Summary The ongoing US-China tariff tensions resemble 2019’s trade war, causing market volatility and impacting global supply chains and investor sentiment. The “impossible trinity” theory explains how countries manage currency policies, with China weaponizing its managed float to counteract US tariffs. Bitcoin emerges as a potential safe haven and global trade settlement currency, offering advantages over gold and fiat currencies amid potentially declining faith in the USD. Possible structural changes in global trade systems make Bitcoin a critical asset in long-term portfolios due to its scarcity, portability, and decentralization. Tariff Turbulence When US President Donald Trump began the first phase of his trade war during his first term, China responded with a key policy measure that could be a critical piece of foreshadowing for the current tariff mayhem that is roiling markets. In August 2019, the People’s Bank of China allowed the exchange rate between the two countries’ currencies to exceed 7:1 for the first time since 2008 in offshore markets and first time ever in its tightly controlled onshore markets. The goal was broadly agreed upon: to keep Chinese exports attractive on international markets. The US accused the PBOC of currency manipulation. The CCP responded that it was an orderly market response to US protectionism. Markets sold off in response to this spate of escalations, with equities suffering their most volatile period of the year and yields plummeting . Data by YCharts Today’s situation feels quite similar to the 2019 tensions. With objectively absurd bilateral tariff rates and a refusal to budge from both sides, US/China tensions are high. The USD/CNY exchange rate is well above the 7:1 threshold and has been for some time, meanwhile US foreign policy seems to change daily. Data by YCharts The uncertainty brought on by President Trump’s so-called “Liberation Day” caused volatility to spike and has sparked several violent selloffs. The broad-based reciprocal tariffs were later paused for 90 days, which caused a face-ripping run that stoked feelings of euphoria. The following day, however, stocks sold off most of those gains. It was as though the market realized overnight that the only remaining tariffs, those on Chinese goods, were the ones that truly mattered. Amidst the broad-based selloff, Treasury yields went rocketing upwards in puzzling fashion. One would expect yields, a reflection of demand for a safe haven, would decline as risk asset uncertainty rises. This abnormal market reaction is important. It underpins, among other things, a potential decline in the trust of American stability. The age-old safe haven of gold began running higher. Declining demand for dollars is troublesome for a debtor nation that is running consistent trade deficits, but to be expected when foreign policy is as fickle as a newborn baby. The dollar is powerful because of trust. Shake that trust, and you add enormous risk to the system. Data by YCharts Now, Trump claims that negotiations with China on a trade deal are progressing well. If the market has learned anything in recent weeks though, it is that this administration’s posture can change quite quickly. While the immediate financial impacts of US trade policy are not yet clear, the policy volatility has had very real psychological effects. Supply chains rippled with order cancellations, delays, and fast-tracking. Look no further than Apple ( AAPL ) loading products into planes and flying them into the US. Cost-sensitive retailers like Five Below ( FIVE ) cancelled Chinese orders . Nike ( NKE ), heavily exposed to Chinese manufacturing, was punished by the market. Executives globally became paralyzed with the uncertainty. Despite the promising backdrop of ongoing trade negotiations, the 90-day pause deadline looms large in what is a potential day of reckoning for over 50 years of global trade precedence. The Impossible Trinity Before we get into the currency implications of this trade environment, we must first set a baseline understanding of international monetary theory. Chiefly, the impossible trinity. The impossible trinity, also known as the Trilemma, describes three distinct policy measures that governments must take. …a country can only simultaneously achieve two of these three: a fixed FX rate, independent monetary policy, and free capital flows. The United States has independent monetary policy with the Fed and free capital flows but sacrifices control over USD exchange rates as a result. USD FX rates are decided on the open market, which brings with it volatility and uncertainty. China, on the other hand, prioritizes capital flow restrictions. The CCP maintains tight control over what money can be invested into Chinese markets and by whom . As a result, they can maintain independent monetary policy with the PBOC and keep their currency floating within a certain threshold of USD (effectively making it fixed within a range). [This is known as a managed float.] Historically, the CNY was kept below 7 USD, but the Chinese government has in the past weaponized the CNY-USD exchange rate, allowing it to exceed 7 CNY:USD. Most notably during the 2019 Trump trade war 1.0. This makes Chinese exports more attractive in USD terms, easing the burden of higher tariff rates on Chinese exporters. In 2025, Trump painted trade policy with a much broader brush. This increases the risk that other countries could retaliate in kind by devaluing their currency relative to the USD. The risk that the current US administration is running is one of currency weaponization. Many countries globally, faced with the Trilemma, have elected to maintain either a pegged or managed float between their currency and the USD. This gives countries a lever to pull in response to tariff uncertainty and escalations. For years, this was of little consequence. US markets and the USD were seen as the safe haven globally, and there was little reason to respond with forceful measures. This could change as the standard of free trade is being unraveled in front of our eyes. Multilateral trade systems work because comparative advantages lead to improved welfare outcomes overall. But the US is now taking a firmly bilateral, reciprocal stance with a clear “what’s in it for us?” undertone. Any further unraveling of our trade system by the global hegemon will not be without consequence, and geopolitical adversaries will not happily pay rent to the US for access to global trade networks. Over time, this could lead to broken sentiment in the stability of the USD in global trade invoicing, declines in global reserve currency accumulation, and potentially a wholesale shift to find another store of value. Enter: Bitcoin It’s a bold claim, but a necessary discussion. For several years, the Bitcoin ( BTC ) community has harped on the cryptocurrency’s legitimacy as a store of value and unit of account. The book The Bitcoin Standard codified this attitude in the community. With rapidly dwindling supply growth, any structural increase in demand will cause the price of bitcoin to explode upwards. It makes sense to allocate at least some percentage of a diversified portfolio for this reason. But what could catalyze that structural shift? For one, an unraveling in global trade and declining faith in the reserve currency. During the infamous Smoot-Hawley tariff era, the US imposed tariffs on foreign countries indiscriminately and without considering the consequences. When international countries retaliated, it caused a fracture in global trade systems and ground much cross-border commerce to a halt. The trade environment of the 1930s spiraled into the economic collapse now known as the Great Depression. Importantly, it created fertile grounds for geopolitical upheaval and eventually war. An emboldened Germany, led by Adolf Hitler, began enforcing its will on European neighbors. The globe split into the Allied and Axis powers, World War II ensued, and the US eventually forced an unconditional surrender with a weapon of mass destruction. The aftermath left world leaders scrambling to rebuild global systems. Eventually, the gold standard rose from the ashes after being destroyed by WWI and the Bretton Woods Agreement was born. The US was a blossoming global superpower and an economic heavyweight, so the new gold standard looked a bit different from the classic one. The USD was pegged to gold, and all other currencies would be tradeable for USD. Richard Nixon would later de-peg the USD from gold and unravel the Bretton Woods system, effectively birthing the current global reserve currency system. It was the initial unraveling of global trade dynamics and an ensuing economic calamity that triggered the structural changes that culminated in our current system. Today, we are witnessing another potential unraveling of global trade and a rapidly increased risk of the resulting global economic fallout. This has caused gold to ascend to new record highs as investors flock to a safe haven. Meanwhile, Bitcoin has had a year full of achievements in its own right. It broke the $100,000 barrier for the first time, now has publicly traded ETFs, and, for some time, completely decoupled from stocks during the recent volatility spike. It has since declined a bit, trading roughly 20% off all-time highs, but the famously high beta asset has shown remarkable stability amidst market volatility. It is seeing rapidly increasing institutional interest, with Strategy (formerly MicroStrategy) ( MSTR ) being the foremost example. Using Bitcoin as a means for global settlement of high-value transactions is a very legitimate use case that is already finding a footing . Bitcoin’s core characteristics: an immutable, impenetrable fortress ruled by code and protected by energy costs, will eventually be recognized for the value it could bring to global trade. Will this happen overnight? Absolutely not. The vast majority of trade is still denominated in the USD, and the majority of global reserves are still held in USD. Yet history tells us that lasting structural change can be borne out of fractured global trade systems. But why Bitcoin and not gold? Gold bears with it extremely high transactional frictions and has costly storage, protection, and transportation requirements. Bitcoin transactions clear in minutes and are stored in bytes. Safely participating in the Bitcoin network simply requires thoughtful storage and an internet connection. The greatly improved cost structure of using bitcoin rather than gold in global trade settlements makes it the obvious choice long-term. Bitcoin presents the world with a currency that has better characteristics than fiat and gold across several dimensions, chiefly scarcity, portability, and decentralization. It has low supply growth, countless sources of potential new demand, and an extremely reliable consensus mechanism for transaction settlement. The network incentivizes honesty rather than dishonesty through real-world energy costs. Bitcoin is often called ‘digital gold’, a fitting name. In the digital age, I’m betting on Bitcoin, not gold. In a world quickly spiraling toward a hegemon weaponizing its status to extract value from global competitors, lasting structural change is a very real possibility. Bitcoin could be the defining winner of Trump’s tariff gambit. It deserves a share of any long-term portfolio due to the extremely positive risk-reward of this speculation. After all, history teaches us that the price of weaponized trade is stateless money.

Source: Seeking Alpha