What Does the Dow Jones Toppling Mean for Cryptocurrencies?
There were heavy losses in US markets on Thursday after President Trump announced the implementation of fresh tariffs on China as early as next weeks.
These tariffs will amount to approximately $50 billion on a yearly basis for Chinese exports. There is widespread fear that China will retaliate and financial market across the world will be plunged into further chaos.
The Dow Jones was down 724.42 points for the day, which represents a 2.93% reduction. Analysts expect there to be further decreases before the weekend. Some are even going so far as to say this could signify the start of a reversal of this multi-year bull trend in charge of the record highs of the past few months.
The question on a lot of people's minds is whether or not the falling Dow Jones presents an opportunity for cryptocurrencies.
Why is this trade war such a big deal?
While President Trump has been threatening the addition of trade tariffs for a while, they've finally become a reality. He wants to make a more protectionist economy whereby home-grown businesses can reap the benefits of this change in coverage.
China has been one of his main targets since taking office, as he blames them for causing significant damage to US manufacturers and employment. There's no doubting that China will not take this movement lightly.
How could this trade war be great for cryptocurrencies?
While tariffs may appear to be a good idea on paper as they ought to protect the market, in fact, it generally only ends up benefitting a small section of the market, with the remainder of it suffering.
The US Dollar will weaken as a result of this approach, and it might open up a move for more institutions to conduct transactions using cryptocurrencies.
Rather than having to deal with a weakening US Dollar, people may turn to using cryptocurrencies for their trades and to keep their wealth.
Bitcoin, by way of example, has been dubbed «digital gold» and it is at volatile times that investors place their money in more conservative investments like that of gold. Gold will generally retain its value as the financial markets worsen.
Cryptocurrencies may also be used to go around the trade restrictions which are in place. This means that significant fees and penalties can be avoided (albeit illegally) and transactions can proceed as normal.
If using crypto becomes common practice, many institutions will realize the many advantages associated with this approach and might not return to fiat currencies when volatility in these markets has stabilized.
An event like this trade war could be the catalyst for a more significant and widespread adoption of cryptocurrencies as a medium of exchange.
In the world of finance, there are never any guarantees. There has been a massive bull market in the traditional financial word for several decades now, with money being awash for institutional investors to spend as they please.
Many had the spare capital to invest in somewhat riskier investments, such as that of cryptocurrencies. But if this transaction war triggers a sustained bear market, this could cause investments drying up in the crypto sector, dragging it into a bear market with the rest of the economy.
In a previous article, I theorized that that as financial market fears increase, the purchase price of bitcoin decreases and vice versa. So far, I've been correct.