Source: Cointelegraph
Original: “Analysis: Why Bitcoin (BTC) Price Dropped After Trump Announced US-China Tariff Deal”
Key Points:
Bitcoin (BTC) lagged behind as investors shifted to the stock market after the US and China reached a potential agreement to end the current trade war.
Macroeconomic conditions are shifting from gold investments to the stock market.
Bitcoin (BTC) reached a three-month high of $105,720 on May 12 but failed to maintain its bullish momentum. Notably, the drop to $102,000 occurred after a temporary easing of the US-China tariff conflict. This phenomenon left traders puzzled as to why Bitcoin reacted negatively to what seemed like a positive development.
The 90-day trade truce reduced import tariffs on both sides, and US Treasury Secretary Scott Bessent stated that the agreement could be extended if both parties demonstrate sincere efforts and maintain constructive dialogue. According to Yahoo Finance, topics discussed included "currency manipulation," "steel price dumping," and semiconductor export restrictions.
Part of the recent lack of momentum for Bitcoin (BTC) can be attributed to its significant 24% increase over the past 30 days, while the S&P 500 futures only rose by 7% during the same period, and gold remained stable. Investment analysts believe that investors currently lack sufficient reasons to expect Bitcoin to further diverge from traditional markets, especially considering its 30-day correlation coefficient with the stock market remains high at 83%.
It is noteworthy that Bitcoin's market capitalization has successfully surpassed that of silver and Google, now ranking as the sixth-largest tradable asset globally, demonstrating its growing importance in the global financial market.
The news of Strategy accumulating 13,390 Bitcoins between May 5 and May 11 has raised concerns among investors. With BlackRock and Strategy collectively holding 1.19 million Bitcoins, approximately 6% of the circulating supply, some traders worry that Michael Saylor's company has effectively become a major force supporting Bitcoin prices.
Critics like Peter Schiff predict that Strategy's continuously rising average purchase price may eventually lead to losses, forcing the company to sell part of its holdings to cover borrowing costs. However, this scenario seems unlikely as the company has doubled its capital increase limit to $21 billion in stock financing and $21 billion in debt financing.
Although traders often focus on Bitcoin-specific events, the most likely reason for the weakness around $105,000 is the broader macroeconomic environment. While the tariff suspension policy directly benefits the stock market, it has a somewhat negative impact on scarce assets like Bitcoin. For example, as demand for safe-haven assets decreased, gold prices fell by 3.4% on May 12.
Gold prices have historically shown an inverse relationship with the US Dollar Index (DXY), which rose to a 30-day high on May 12. Despite a 0.3% decline in US GDP in the first quarter and a 6.1% month-over-month surge in pending home sales in March, the strong dollar still reflects investor confidence in the market.
As Bitcoin prices approached $105,000, investor confidence waned, partly due to weakened demand for scarce assets, as investors generally believe that the stock market is the more direct and immediate beneficiary of the US-China trade agreement. Lower tariffs mean companies are expected to achieve revenue growth and improved profit margins.
Given that US Bitcoin spot exchange-traded funds (ETFs) attracted up to $2 billion in inflows from May 1 to May 9, the likelihood of Bitcoin prices dropping below $100,000 remains low. After a monthly increase of 24%, Bitcoin demand remains robust, indicating that the current market is driven by institutional adoption rather than retail fear of missing out (FOMO), which is very favorable for price trends.
Related: If gold reaches $5,000, what will the price of Bitcoin (BTC) be?
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