With Bitcoin’s value declining and U.S.–China tariffs escalating to 84%, are we witnessing the beginning of another systemic selloff, or can the Federal Reserve contain the repercussions?
Beijing Announces Additional Tariffs on U.S. Goods
Recent days have seen a rapid escalation in trade tensions between the U.S. and China, exerting significant pressure on global financial markets.
On April 6, China announced a 34% counter-tariff on American products in response to the U.S.’s tariff increase, which President Trump had implemented just days prior as part of his new “Liberation Day” trade policy.
In retaliation, Trump stated that if China doesn’t retract its action, the U.S. would impose an additional 50% tariff on existing tariffs.
With a base tariff of 20% already in place since March, some imports from China could now face total tariffs amounting to 104%.
The situation further deteriorated on April 9, when China revealed an extensive 84% tariff on U.S. goods, effective April 10. This includes the previously announced 34% increase, underscoring China’s decision to maintain firm stances rather than seek de-escalation.
Following this announcement, U.S. stock futures plummeted, with Dow futures dropping 790 points (2.1%), S&P 500 futures falling by 1.8%, and Nasdaq-100 futures decreasing by 1.5%.
As of April 8, the S&P 500 had dipped below the 5,000 level for the first time in close to a year, marking an 18.9% decrease from its peak in February, edging closer to bear market territory.
According to LSEG, S&P 500 companies have collectively lost $5.8 trillion in market capitalization over the past four days, making this the sharpest four-day drop since the index’s inception. Japan’s Nikkei and various other Asian markets are displaying similar downward trends.
Cryptocurrency markets are also feeling the impact, with the global crypto market cap now at $2.45 trillion, a decline from $3.66 trillion in mid-January, just prior to Trump’s inauguration.
Bitcoin (BTC), which reached an all-time high of $109,000 back in January, is currently trading around $76,000, having seen lows of $74,500 over the last 24 hours. Ethereum (ETH) has fallen over 20% in the past week, trading near $1,450.
The Crypto Fear and Greed Index, a measure of market sentiment based on price volatility and trading patterns, has plummeted to 18, indicating “extreme fear” levels not observed since June 2022.
In this context, speculation is rising regarding the Federal Reserve’s potential for a rate cut in the short term and its implications for digital assets. Let’s explore further.
Interpreting the Data
Recent fluctuations in financial markets indicate a period of prolonged stress rather than a brief correction. The S&P 500 has entered its 11th-largest uninterrupted decline since 1940, with a 12.1% fall over the last four trading sessions.
This current drawdown mirrors those seen during significant crises like March 2020, October 2008, and September 2001, all of which were characterized by broader macroeconomic or geopolitical upheavals.
The volatility index (VIX) remains high, closing above 45 on April 8 for three consecutive days. This pattern has only been observed three times in recent decades — during the bear markets of 2008, 2020, and presently in 2025.
While it isn’t a predictive component in isolation, it signifies a larger repricing of risk, with extended volatility above typical thresholds.
Beyond equities, bond markets are currently unstable, influenced by the unwinding of carry trades and persistent inflation concerns that may be more resilient than previously expected.
Many analysts argue that present volatility is complicating investors’ abilities to gauge risk premiums and to incorporate future expectations confidently.
There is also increasing doubt regarding expectations for rapid policy easing from the Federal Reserve. Notably, economist Nouriel Roubini has warned that markets may be prematurely assuming central banks will respond aggressively.
This perspective suggests that any forthcoming support may be delayed or less impactful unless political discourse, particularly from President Trump regarding trade, signals a slowdown.
Simultaneously, Bank of Japan Governor Kazuo Ueda has indicated that interest rates will continue to rise if domestic developments progress as anticipated. However, he acknowledged that global trade tensions remain a critical factor, indicating that foreign monetary policies may stay reactive until a stable broader situation emerges.
Is a Rate Cut From the Fed Imminent?
The renewed strain on the U.S. economy has prompted investors to reconsider how soon the Federal Reserve might need to intervene.
As per the CME FedWatch Tool, the likelihood of a 25 basis point cut during the Fed’s meeting on May 6–7 has surged to 54%, a significant jump from only 10% a week prior.
This shift in sentiment reflects growing trepidation that ongoing financial pressures, partly induced by tariff-related shocks, could swiftly undermine consumer confidence and business investments.
However, the Fed’s messages remain tempered. San Francisco Fed President Mary Daly remarked this week that there is “no urgency” to lower rates.
While she acknowledged short-term inflation challenges arising from tariffs, she affirmed that economic growth is still robust and that current policies are in a stable position.
Federal Reserve Governor Adriana Kugler echoed this sentiment, suggesting that the recent inflation increase may stem from expectations regarding new tariffs rather than a fundamental alteration in price trends.
Kugler reinforced the Fed’s commitment to its 2% inflation objective, emphasizing the importance of anchoring long-term inflation expectations.
Nonetheless, there’s dissent on whether adopting a wait-and-see attitude is advisable. Financial commentator Peter Schiff, a known critic of Bitcoin, warns that the Treasury market is already signaling increased instability, noting that yields on 10- and 30-year bonds reached 4.5% and 5%, respectively. He cautions that without an immediate rate cut and substantial liquidity injection, conditions may deteriorate further.
Crypto analyst Quinten noted a similar phenomenon, indicating that investors aren’t shifting towards traditional safe havens like government bonds amidst stock market declines.
When both equities and bonds decline simultaneously, it generally illustrates tightening liquidity conditions, which crypto assets tend to react to swiftly.
If the Federal Reserve opts to lower rates, digital assets could experience a surge in investment due to increased liquidity. Historically, lower interest rates have funneled capital into higher-risk, growth-focused assets, including crypto.
A rate reduction could alleviate current selling pressure, possibly restoring investor interest in assets like Bitcoin, which have previously thrived during periods of expansionary policy.
Conversely, if the Fed maintains steady rates and takes a cautious approach, crypto markets may remain under strain, especially if the broader financial climate continues to worsen.
Liquidity is a crucial factor in valuing crypto, and in the absence of clear signs of relief, the sector may continue to mirror the stresses seen in other asset classes.
