Over the past few months, the U.S. has taken a seemingly pro-crypto stance, fostering optimism in the digital asset space. With the Securities and Exchange Commission (SEC) easing enforcement and a new White House executive order providing regulatory clarity, many had hoped for a stable period in the crypto market. However, the past week has shown how deeply macroeconomic policies now impact digital assets.

When Trump announced tariffs on China, Canada, and Mexico, the crypto market suffered a sharp decline, losing over $2 billion in a single day. Some estimates suggest that the actual liquidations surpassed $10 billion, making it one of the worst crashes since the FTX debacle. Analysts indicate that a combination of investor panic and speculative trading strategies—such as “buy the rumor, sell the news”—intensified the market turbulence.

Although Trump temporarily postponed tariffs on Canada and Mexico by a month, the uncertainty remains. If these tariffs take effect, they could constrict consumer spending, increasing recession risks across North America. Tariffs function as taxes on imports, raising prices for goods and reducing consumer demand. Given that consumer spending drives nearly 68% of the U.S. GDP, a decline in spending could push the economy closer to contraction. Job losses would follow, with the U.S. expecting a 0.25% employment decline, while Canada and Mexico could see job losses as high as 3%.

The economic repercussions of these tariffs could be severe. Analysts at Deutsche Bank warn that prolonged tariffs on key trading partners like Canada and Mexico could have a broader impact than Brexit had on the U.K. With the potential for economic downturns in neighboring countries, the effects could ripple back into the U.S. economy, amplifying recession risks.

Beyond traditional trade concerns, these policies are triggering volatility in financial markets, particularly in crypto. When Trump postponed the tariffs, Bitcoin briefly rebounded from $92,000 to over $100,000. However, the relief was short-lived, as China retaliated with its own tariffs, sending Bitcoin back down to $96,000 within hours. This rapid price fluctuation underscores the increasing sensitivity of crypto markets to global trade developments.

The Federal Reserve has also expressed concerns about inflationary pressures stemming from tariffs. Rising import costs could fuel inflation, forcing the Fed into a difficult position. Higher inflation could prompt the Fed to raise interest rates, which could further dampen economic growth. The central bank must now balance these conflicting pressures—controlling inflation while preventing an economic slowdown.

Meanwhile, gold has emerged as a preferred safe-haven asset amid the uncertainty. On February 3, gold prices hit an all-time high, reflecting investors’ growing preference for stability. This trend highlights a crucial market shift: as digital assets struggle with volatility, traditional hedges like gold are seeing renewed demand.

In the coming weeks, the trajectory of Trump’s trade war will be pivotal. If aggressive tariffs persist without substantial trade concessions, inflation and market volatility could worsen. Furthermore, the risk of a recession looms over key trading partners, potentially disrupting global economic stability. While some argue that these tariffs could eventually lead to improved trade deals, the immediate costs—reduced consumer confidence, job losses, and financial market instability—pose a significant challenge.