Key Points
Research suggests trade war fears, like U.S.-China tariff disputes, have historically caused significant stock market declines, with recent data showing a $3.2 trillion drop in the S&P 500 in early 2025.
It seems likely that cryptocurrencies, particularly Bitcoin, often move in sync with stocks during such events, with Bitcoin dropping 7% in early March 2025 amid tariff tensions, per Reuters.
The evidence leans toward institutional investors treating both stocks and crypto as risk assets, reducing exposure during trade war escalations, with J.P. Morgan noting increased correlation, per Reuters.
Trade War Impact on Markets
Trade war fears, particularly U.S.-China tariff disputes, have significantly impacted global financial markets. Recent data shows a $3.2 trillion drop in the S&P 500's market value in early 2025 due to tariff escalation fears, pushing the NASDAQ into a 10% correction, as reported by Reuters. Investors, wary of economic uncertainty, have shifted to defensive assets like gold, amplifying market volatility.
Stocks and Crypto: A Synchronized Slide
Bitcoin's price movement has been closely aligned with traditional risk assets during trade war tensions. For instance, in early March 2025, Bitcoin fell by 7% as U.S.-China tariff talks stalled, mirroring a broader market selloff, per Reuters. While rare, Bitcoin once surged 11.5% during a 2023 currency devaluation, suggesting a fleeting safe-haven role, per Wealth and Finance.
Institutional Behaviour
Institutional investors view both stocks and crypto as risk assets, cutting exposure during trade war jitters. Recent reports show hedge funds reduced equity and crypto positions in early 2025 tariff scares, with no significant rotation between them, notes Reuters. J.P. Morgan analysts highlight Bitcoin’s correlation with the S&P 500 at 0.75, up from 0.5 in 2023, per Reuters.
Crypto-Linked Sectors and Stocks
The overlap between equity sectors and crypto creates volatility spillovers. Chipmakers like Nvidia, linked to crypto mining, saw a 15% stock drop in 2022 during a crypto downturn, per VentureBeat. Crypto exchanges like Coinbase saw a 6% stock decline in early March 2025 as Bitcoin fell, per Reuters, showing interconnected risk.
Takeaway: A Unified Risk Pulse
Trade war fears impact both stocks and crypto similarly, driven by shared investor sentiment. When confidence dips, both markets decline; when it rises, both can rally, per Reuters. This correlation suggests crypto’s volatility is tied to broader market dynamics, not a standalone hedge.
