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Binance Research: Impacts of Tariff Escalation on Crypto Markets

2025-04-08

Main Takeaways

Last week, U.S. President Donald Trump announced sweeping new tariffs, triggering significant global trade shifts and massively affecting financial markets.

The aggressive U.S. protectionist measures have led to retaliatory tariffs from major trading partners, causing volatility and uncertainty across the global financial system.

The crypto market's heightened volatility and shifting correlations with traditional assets amid the shock suggest a reevaluation of the asset class’ role, with potential for long-term change as it adapts to new economic realities.

In early 2025, the United States triggered the most significant shift in global trade dynamics in nearly a century. After returning to office, President Donald Trump announced sweeping new tariffs, both across-the-board and country-specific, aimed at what he described as restoring trade fairness and U.S. sovereignty. Markets have since responded with a wave of volatility and repricing, particularly across equities and digital assets.

This blog summarizes the Binance Research report that overviews the key developments in tariff policy, the knock-on effects on investor sentiment and crypto performance, and the macroeconomic shifts that are likely to shape the months ahead.

The New Age of Protectionism

The return of aggressive U.S.-led protectionism has reshaped the global economic narrative. Making good on his campaign-trail promises, President Trump introduced a 10% blanket tariff on all imports to the United States, which came into effect on April 5.

On April 2, referred to by President Trump as “Liberation Day,” the White House announced sweeping tariffs impacting up to 60 countries and representing a full-scale reversal of decades of trade liberalization. The baseline duty of 10% was layered with higher, targeted tariffs against trading partners: 34% on China, 20% on the European Union, 24% on Japan, and 46% on Vietnam, among others. Canada and Mexico had already been hit with 20% duties earlier in the year. 

As a result, the average U.S. import tax had risen to 18.8%, with some estimates suggesting an effective average of over 22%. For comparison, tariffs averaged just 2.5% in 2024 and peaked around 3% during the 2018-2019 trade skirmishes.

Major trading partners have responded in kind. China raised its own tariffs on U.S. goods to 34%. Canada implemented a 25% blanket tariff on U.S. imports. Other nations, including the European Union, South Korea, and India, have either announced or signaled retaliatory measures. The global trading landscape is now marked by escalating friction, uncertainty, and tit-for-tat policy shifts.

Investor Reaction: Going Risk-Off

The sharp turn in trade policy has produced an equally sharp reaction in markets. The total crypto market cap has dropped nearly 26% since January, wiping out approximately $1 trillion in value. Equities have also tumbled, with the S&P 500 falling more than 17% over the same period.



Source: Investing.com, CoinGecko, Binance Research, as of April 4, 2025

Investor behavior has shifted decisively into risk-off mode. Capital is rotating out of growth and speculative assets and into traditional safe havens such as U.S. Treasury bonds and gold, the latter of which has broken successive all-time highs since March.

Bitcoin, long debated as either a hedge or a high-beta asset, has declined by 19%. Ether has fallen over 40%. More speculative crypto sectors – memecoins, AI and gaming tokens – have plunged by more than 50%, underscoring their correlation with broader risk sentiment during periods of stress.

The fund manager survey data supports this pattern. In February, only 3% of institutional respondents identified BTC as a preferred allocation in the event of a prolonged trade war, compared to 58% who favored gold.

Volatility Resurges Across Crypto

One of the most immediate effects of the tariff-driven macro shift has been a resurgence in market volatility. In late February, following a surprise tariff announcement targeting Canada and the EU, BTC dropped 15% over a matter of days. Ether’s 1-month volatility spiked past 100% – levels not seen since the pandemic crash of 2020. Bitcoin’s own volatility rose above 70%.

This trend has continued into April, with major tariff policy announcements acting as volatility catalysts. The relationship is clear: when policy signals are unclear, markets become more reactive, and volatility spikes.

Historically, volatility tends to subside once markets fully digest the new rules of the game. But for now, with no clear ceiling on tariff levels and more retaliation likely, volatility is expected to remain elevated.

Macro Effects: Inflation, Stagflation, and Fed Dilemmas

The tariffs have delivered a direct inflationary shock to the U.S. economy. Import prices are rising just as the Federal Reserve has been attempting to guide inflation back toward its 2% target. Market-based measures such as one-year inflation swaps have jumped above 3%, while consumer surveys now suggest inflation expectations of over 5%.

This presents a challenge. At the same time that inflation risks are rising, global growth forecasts are being revised downward. According to some analysts, a fully implemented trade war could cost the global economy up to $1.4 trillion in lost output. U.S. GDP per capita could fall by nearly 1% in early stages.

These twin pressures – rising inflation and slowing growth – are the hallmarks of stagflation, a scenario where central banks face a lose-lose decision. They must either raise rates into a slowdown or risk letting inflation spiral. U.S. Federal Reserve Chair Jerome Powell has acknowledged the scale of the tariff shock and said its effects on growth and inflation will be closely monitored.

Fed Funds futures now indicate that markets expect four rate cuts in 2025, up from just one expected earlier this year. That shift suggests a growing belief that the Fed will be forced to prioritize growth over inflation control. If that proves true, it could reshape liquidity dynamics across all asset classes, including crypto.

Crypto’s Shifting Correlations

The trade war has reshaped BTC’s correlation profile. In late January, when tariffs were first hinted at, Bitcoin and the S&P 500 diverged slightly, pushing their 30-day correlation to -0.32. But as the narrative of a full-blown trade war emerged, their movements converged. By March, BTC-S&P correlation had rebounded to 0.47, highlighting how both markets were being driven by the same macro concerns.

Meanwhile, Bitcoin’s correlation with gold turned sharply negative. Investors seeking safety opted for gold, pushing its correlation with BTC to -0.22. These movements reinforce the idea that, in acute periods of macro stress, crypto behaves more like a high-beta tech stock than a monetary hedge.



Source: Investing.com, Binance Research, as of April 5, 2025

That said, longer-term data tells a more nuanced story. Since 2020, Bitcoin has maintained only a modest average correlation with equities (~0.32) and an even weaker one with gold (~0.12). This suggests that the current alignment with traditional risk assets may be temporary, being driven more by headlines than by structural shifts.

The Road Ahead: Key Themes to Watch

The path forward for crypto will likely hinge on a few interrelated macro and policy developments.

New trade policy actions, especially sudden tariff expansions or concessions, will remain the most immediate source of market volatility. Inflation data will also be critical. If consumer prices rise faster than expected, fears of entrenched stagflation could intensify. Alternatively, softer inflation could provide room for central banks to ease.

Global growth indicators, particularly PMIs, jobless claims, and earnings downgrades, will shape expectations for rate policy. Central bank decisions, especially from the Fed, ECB, and PBOC, could shift liquidity conditions in ways that directly affect capital flows into or out of crypto.

Finally, crypto-native catalysts remain relevant. ETF approvals, regulatory clarity, or strategic moves such as sovereign BTC accumulation could help crypto reassert an idiosyncratic narrative. Whether these drivers can overcome macro headwinds will be critical to watch.

Final Thoughts

The 2025 tariff resurgence has ushered in a period of intense macro stress, and the effects have rippled across the crypto asset class. For now, digital assets are trading as risk assets – subject to volatility, outflows, and macro sensitivity. But the potential remains for BTC to reassert its identity as a hedge in an inflationary, protectionist world.

If central banks begin cutting rates into persistent inflation, and if confidence in fiat regimes weakens, Bitcoin’s appeal as a non-sovereign monetary asset may return to the fore. Until then, investors should remain cautious, well-diversified, and alert to further macro and policy surprises.

For more detail, data, and charts, refer to the full Binance Research report on the 2025 Trade War and Crypto Market Impact.