Why DeFi Benefits from the Trade War

By Leo Mindyuk, CoinDesk; Compiled by Baishui, Golden Finance

Bitcoin (BTC) plunged over the weekend, falling below $100,000 as markets reacted to the latest escalation in the US trade dispute. The broader digital asset market followed suit, leading to one of the worst sell-offs since the Covid outbreak and the FTX crash. Specifically, President Donald Trump announced new tariffs of 25% on goods imported from Canada and Mexico, and 10% on Chinese goods.

Canada and Mexico initially retaliated but later reached an agreement to postpone tariffs on US goods, while China also announced tariffs on US goods. These developments increased uncertainty in the global economy and caused risk assets to temporarily free fall.

As the global economy is caught up in trade disputes, the cryptocurrency market faces a chain reaction of price volatility, mining disruptions, and regulatory challenges. But will these tensions also fuel the rise of decentralized finance? Let’s explore how the tariff war will affect the future of cryptocurrency.

BTC Reacts to Tariff Announcement

Market Volatility: A Double-Edged Sword

The tariff war has created uncertainty in traditional markets, often driving investors to alternative assets like Bitcoin, Ethereum and other cryptocurrencies. Cryptocurrencies are sometimes viewed as a “safe haven” similar to gold during times of economic turmoil. However, even as institutional adoption of cryptocurrencies grows, digital assets remain highly speculative. In the short term, cryptocurrency markets will be negatively impacted by increased volatility in global trade, with changes in trade policy causing sudden rises or falls — but over time, cryptocurrencies will be less affected than traditional finance.

Mining Disruptions

Crypto mining relies heavily on specialized hardware, much of which is produced by countries like China. Tariffs on electronic components, semiconductors, and mining equipment could drive up production costs and reduce profitability. Additionally, increased fees could squeeze smaller miners out of the market, potentially leading to a greater concentration of mining power among major players who have the resources to weather these financial storms.

Regulatory Uncertainty and Compliance Hurdles

Tariff wars don’t just affect physical goods; they also affect financial regulation. Governments involved in tariff wars could use financial regulation as an additional tool to exert control. Increased scrutiny of international cryptocurrency transactions, exchanges, and cross-border payments could lead to stricter compliance requirements. This in turn could slow adoption and make cryptocurrencies more difficult to access, especially in regions where trade restrictions are tightening. At the same time, increased regulation could push some users toward decentralized finance (DeFi) platforms, which operate outside the traditional banking system.

Turning to Decentralized Finance (DeFi)

As trade conflicts fuel distrust in the traditional financial system, decentralized finance (DeFi) could offer users a way to circumvent some of the barriers created by tariffs and regulation. More users could turn to DeFi platforms for financial autonomy.DeFi applications allow for peer-to-peer transactions without intermediaries, reducing reliance on traditional banks, which are often affected by trade policy. If tariff wars continue to disrupt traditional trade channels, cryptocurrency-based financial solutions could see greater adoption.

Conclusion

While cryptocurrency is often seen as a hedge against economic instability, it is not immune to the impact of tariff wars. From increased volatility and mining costs to regulatory changes and the potential rise of DeFi, today’s trade conflicts could shape tomorrow’s digital economy. While cryptocurrencies may face new obstacles in the short term, they will emerge stronger in the long term as global markets seek alternatives to traditional finance amid ongoing economic warfare by governments around the world. Investors, miners, and policymakers should closely monitor trade developments as they navigate the complex relationship between geopolitics and digital assets.