In What Way Did Trump's Renewed Trade War With China Contribute To Volatility In The Crypto Market?

January 2018 was the moment everything shifted. During his first term as President of the United States, Donald Trump imposed tariffs on roughly $46 billion worth of Chinese goods, including steel and aluminum, solar panels, and washing machines, to protect domestic manufacturing. China adopted a tit-for-tat strategy in the trade war, imposing 25% tariffs on approximately $45 billion of U.S. exports. China's retaliatory tariffs followed each wave of punitive tariffs from the U.S.

By 2025, the conflict had reached new heights, energized by the policies of Trump's second administration. On October 10, Trump announced he would impose an additional 100% tariff on imports from China, effective from November 1, in response to Beijing's new export controls on rare earth minerals. On October 14, the president added that his administration is considering halting cooking oil imports due to China's soybean boycott, adding further uncertainty to global trade. 

In the aftermath of Donald Trump's tariff campaigns, Bitcoin, Ethereum, Solana, and other contenders for the title of top cryptocurrency saw double-digit losses as investors shifted towards safer assets. The crash spilled over into crypto-related stocks, which tend to move in tandem with the broader market sentiment around Bitcoin and Ethereum. When crypto markets panic, equity investors sell off immediately, heightening volatility across both digital assets and traditional markets, and this nexus erodes confidence in the broader tech sector. 

The Return of US-China Trade Frictions: What's Driving the Tensions?

Goodwill between the United States and China appears to have eroded, leaving room for resentment, hostility, and mistrust. China disclosed that it won't allow the export of rare earth minerals, which are integral components in U.S. weapons like Tomahawk missiles, F-35 warplanes, and drones, among others, citing national security concerns. These restrictions will come into effect on December 1. China dominates the global supply chain for rare minerals, controlling 60% of mining and more than 90% of refining. 

Trump reacted by calling China's decision "extremely hostile" and stated that he would raise tariffs and impose export controls "on any and all critical software." The souped-up tensions between the top economies in the world affect other countries not directly involved in the trade war. China's restrictions on metals and magnets would impact European automakers that employ those materials, and the levies on China-linked ships could disrupt global trade. 

Investors Universally De-Risk, Pulling Capital From Assets Perceived As Speculative 

Our world has become irreversibly interconnected due to globalization and geoeconomics. While this mutual dependence has introduced novel opportunities for growth and innovation, it has also exposed vulnerabilities, intensified strategic rivalries, and complicated efforts to balance national interests with global responsibilities. Accumulating shocks, such as the US-China trade war, have persisted, and the future economic environment is challenging to predict due to the unknowns involved. 

Uncertainty is a well-studied phenomenon in economics and finance literature. As uncertainty rises, it becomes more attractive for investors to delay their plans to wait for additional information, e.g., price changes. Increased caution during periods of very high uncertainty may result in taking steps to reduce the risk of a portfolio, which can involve selling higher-risk assets and acquiring more stable ones, thereby compromising yield. Investors with shorter tenures de-risk more in response to bad performance, as they have a stronger incentive to run away from danger. 

Digital Assets Like Crypto Are Often Categorized As Volatile

Cryptocurrencies have no intrinsic value and no centralized system or government intervention, which makes them fundamentally different from traditional fiat currencies. They're traded across numerous exchange platforms spanning multiple regions and time zones, creating conditions where arbitrage opportunities may emerge, therefore attracting traders seeking to take advantage of price discrepancies. The value of a digital asset can change constantly and dramatically, which means that an investment that is worth thousands of dollars today can become worthless tomorrow. 

From Shock to Sell-Off: Tracing the Chain Reaction of Crypto Liquidations

A change in geopolitical risk translates into capital movements from crypto markets to traditional markets. Fear, uncertainty, and doubt (FUD) triggered mass liquidations after President Donald Trump threatened to impose new tariffs on China on October 10, with his own meme coin hitting an all-time low. It was one of the most pronounced daily market contractions in recent history, resulting in the loss of billions in market capitalization. Within a matter of hours, half a trillion dollars vanished, with Bitcoin accounting for over $200 billion of the losses. 

The rapid and widespread decline in the price of digital assets began when Trump confirmed on Truth Social forthcoming tariff increases aimed at foreign imports. The event set off a state of extreme confusion, disorder, uncertainty, and severe volatility in the crypto market, so investors attempted to salvage what they could, selling their holdings at the same time. The resulting panic erased vast amounts of wealth. Following the historic October 10 crash, the crypto market staged a rapid rebound, yet traders remain cautious, notably with leveraged positions. 

Sectoral Disparities in the Wake of Market Turmoil

Although Bitcoin experienced a sharp decline, falling as low as $104,000-$105,000, it recovered the fastest, climbing back above $110,000 by October 13-14, analogous to what happened during the post-COVID crash recovery in 2020. Some analysts believe that Bitcoin's role as an inflation hedge is evolving, especially amid geopolitical uncertainty, with significant institutional acceptance due to its unique, scarce, and decentralized nature. In the short term, it trades in parallel with other risky assets, such as technology stocks; however, in the long term, it serves as a powerful hedge against fiat currency erosion. 

High-beta assets, such as Solana, Avalanche, and Dogecoin, experienced considerably higher losses than Bitcoin because they are more sensitive to market movements, which means their prices move by a higher percentage than the benchmark in the same direction. Solana and Avalanche experienced price drops between 15% and 20%. Equally, meme coins like Dogecoin saw declines of 10% or more, which highlights their speculative nature. Stablecoins like USDT, USDC, and DAI maintained their pegs to the U.S. dollar throughout the crash. 

Concluding Observations 

The escalation of the U.S. – China trade war served as a stark reminder that the crypto markets remain closely intertwined with traditional financial systems, and investors must now account for sudden, unpredictable macroeconomic policy changes and nonlinear risks in portfolio assessments.