Crypto markets face early 2025 tariff headwinds, but could present opportunity

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The crypto markets capped off a stellar 2024, with the entire market more than doubling over the year. Bitcoin, in particular, surged to over $100,000 in early December for the first time, marking a historic year for digital asset investors.

However, some of these gains were swiftly erased over the weekend following Trump’s announcement of major 25% tariffs on imports from key regional allies, Canada and Mexico (and a 10% blanket tariff on Chinese imports). Despite concerns that these tariffs breach the 2020 USMCA trade agreement negotiated during Trump’s previous presidency, the news sent shockwaves through risk assets, with cryptocurrencies experiencing significant losses by Monday morning.

Source: Jaltech (construction), CoinMarketCap (price data)

2024: A year of monumental Crypto growth

The impressive growth of the crypto market in 2024 was driven largely by massive inflows into Bitcoin and Ethereum ETFs. Bitcoin saw over $30 billion in investment via ETFs launched in January 2024, while Ethereum, a smaller market cap asset, attracted nearly $3 billion in late July following the launch of its ETFs.

For context, when gold ETFs launched in 2003, it took over a year to reach $1 billion in inflows and 23 months to hit $3 billion. After five years, gold ETFs had accumulated just $18 billion in total inflows. By comparison, the crypto sector, though smaller than gold, is growing at an extraordinary rate.

Source: Jaltech (construction), respective ETF providers via https://dune.com/hildobby/btc-etfs

The fourth quarter also saw a surge in crypto prices, coinciding with the US election cycle. Trump’s landslide victory and the Republican party’s control of the House and Senate sparked optimism for a pro-growth agenda that could benefit digital assets. Industry insiders hope this could mark the end of a decade of regulatory uncertainty for crypto.

Speculation surrounding the formation of a US Treasury Strategic Bitcoin Reserve intensified after Trump voiced support for the idea during his campaign. Meanwhile, in January, Senator Cynthia Lummis, a staunch crypto advocate from Wyoming, was appointed chair of the US Senate Banking Committee’s digital assets subcommittee, further fuelling optimism for the future of cryptocurrency regulation.

Macroeconomic developments and the tariff risk

The final months of 2024 were also marked by positive macroeconomic developments that initially supported risk assets, including cryptocurrencies. The US Federal Reserve cut rates in November and December, easing financial conditions and laying the foundations for a continued risk-asset rally. However, the Fed held off on further cuts in January due to stubborn inflation and lingering policy uncertainties.

Trump’s latest tariff announcements now threaten to upend the optimism surrounding risk assets, including digital currencies. The market has reacted quickly, with foreign currency markets already pricing in the potential impact of a global trade war and a slowdown in global growth. These tariffs, if implemented, could create significant headwinds for the broader economy and the crypto market.

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Source: Coinbase via TradingView

Is the tariff sell-off a buying opportunity?

Despite the bearish short-term impact, it’s important to assess whether Trump’s tariff moves are truly a serious threat or just part of a broader diplomatic negotiation strategy. Andrew Bishop of Signum Global Advisors notes that the tariffs on Canadian imports remain little more than a paper threat, having already been postponed twice. If the tariffs are aimed at gaining concessions on issues like the flow of fentanyl and migration, much of the recent sell-off could be reversed in the short term. The currency markets of those countries affected do not currently reflect this outlook, which may be an example of financial markets overshooting.

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Source: Bloomberg

This uncertainty creates an intriguing opportunity for investors. If you believe the tariff situation is ultimately more posturing than a real escalation, the recent dip in cryptocurrency prices could represent a compelling buying opportunity. As always, cryptocurrencies remain among the most volatile asset classes; however, the potential rewards as the sector matures and regulatory clarity improves could make exposure a crucial part of a diversified investment portfolio.

Jaltech offers three hassle-free ways of accessing the cryptocurrency market, namely:

1) A diversified basket of 15 cryptocurrencies

2) Bitcoin-only

3) Ethereum-only

If you are interested in Jaltech’s cryptocurrency offerings, click here and complete the enquiry form, and a representative of Jaltech will be in touch. Choose from once-off or debit-order investment options. 

Jaltech manages over R2 billion customer assets and investments and offers a full suite of cryptocurrency products, including regulated Crypto-backed Securities, Custody, and Trade Execution. 

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