As trade tensions between the U.S. and China escalate to new highs, global markets including crypto are feeling the heat. The question now is whether the Federal Reserve will act to contain the fallout.
Beijing Escalates Tariff War with U.S.
Global markets reeled this week after China unveiled sweeping retaliatory tariffs against the United States, further intensifying what many now consider a full-blown trade war. On April 9, Beijing announced an 84% tariff on U.S. goods, effective immediately a response to the escalating tit-for-tat measures kicked off by President Trump’s aggressive “Liberation Day” tariff policy.
Starting from a 20% base tariff introduced in March, the situation rapidly escalated. Trump’s administration imposed a 34% hike, which China matched. But now, with an additional 50% threat from the U.S. hanging in the air, Beijing has fired back with its most aggressive move yet.
The market response was swift and severe. U.S. stock futures plunged, with the Dow down 790 points and the S&P 500 dropping below the 5,000 mark an 18.9% fall from February highs. Analysts now warn that we may be witnessing the early signs of another systemic selloff.
Crypto Markets Under Pressure
Crypto has not been spared from the turmoil. Bitcoin, which hit an all-time high of $109,000 in January, has dropped sharply, now trading near $76,000 with lows of $74,500 seen within the last 24 hours. Ethereum, too, has taken a hit, losing over 20% in the past week.
The global crypto market cap has fallen to $2.45 trillion, down from $3.66 trillion earlier this year. The Crypto Fear and Greed Index now reads 18 “extreme fear” marking its lowest level since mid-2022.
This downward pressure on crypto is a reflection of broader risk-off sentiment, with investors shedding risk assets amid rising volatility, tightening liquidity, and growing uncertainty.
What the Data Signals
The current market slide is not just a momentary blip. The S&P 500 has recorded its 11th-largest uninterrupted decline since 1940, losing 12.1% over the last four sessions. The VIX Wall Street’s volatility index has closed above 45 for three consecutive days, a level only seen during major crises like 2008 and 2020.
Bond markets are also flashing warning signs. Yields on U.S. 10-year and 30-year bonds have spiked to 4.5% and 5%, respectively. Instead of moving into safe-haven assets like Treasuries, investors appear to be fleeing across the board — a scenario that usually signals tightening liquidity and deeper financial stress.
Will the Fed Cut Rates?
Against this backdrop, all eyes are now on the Federal Reserve. Just a week ago, markets saw only a 10% chance of a rate cut at the Fed’s upcoming May meeting. That probability has surged to 54% according to the CME FedWatch Tool, reflecting investor expectations for swift intervention.
However, Fed officials remain cautious. San Francisco Fed President Mary Daly stated there’s “no rush” to cut rates, emphasizing that the economy is still in good shape. Fed Governor Adriana Kugler echoed that sentiment, suggesting the inflation uptick may be temporary and driven by tariff-related fears.
Yet some analysts argue that delay could prove dangerous. Peter Schiff has warned of a looming “1987-style crash” if the Fed doesn’t act swiftly with rate cuts and quantitative easing. Others, like crypto analyst Quinten, have pointed out that the traditional flight to safety isn’t happening — both stocks and bonds are falling simultaneously.
Crypto’s Fate Hinges on Fed Policy
If the Fed chooses to cut rates, crypto could be one of the biggest beneficiaries. Historically, lower interest rates and looser liquidity conditions have driven capital into risk assets — particularly digital ones like Bitcoin and Ethereum. A rate cut could provide the boost needed to stop the selloff and potentially reignite investor confidence.
However, if the Fed holds steady, the crypto market may remain vulnerable. Without new liquidity or relief in sight, Bitcoin and other digital assets could mirror the sustained stress playing out in equities and bonds.
Final Thoughts
With U.S. China trade tensions spiraling and financial markets increasingly unstable, the pressure is building for central banks especially the Fed to intervene. Whether that comes in the form of a rate cut, a QE program, or another policy response remains to be seen.
For now, Bitcoin’s fall to $76K might be a symptom of broader market distress or the beginning of a deeper reckoning if the macro picture continues to deteriorate.
