Why did the Bitcoin price fall after Trump reached a US-China tariff agreement?

Author: Marcel Pechman, CoinTelegraph; Translated by: Deng Tong, Jinse Finance

Abstract:

• After the US and China reached a possible agreement to end the current trade war, investors turned to the stock market, and Bitcoin lagged behind.
• The macroeconomic environment is shifting from gold investment to the stock market.

On May 12, the price of Bitcoin reached $105,720, marking the highest point in over three months, but subsequently failed to maintain its upward momentum. Notably, the price of Bitcoin fell to $102,000, despite a temporary easing of the tariff conflict between China and the United States. This left traders puzzled as to why Bitcoin reacted negatively to what appeared to be positive developments.

The 90-day ceasefire agreement has reduced import tariffs. U.S. Treasury Secretary Scott Basset pointed out that the agreement can be extended as long as both sides make sincere efforts and engage in constructive dialogue. According to Yahoo Finance, the topics of discussion include "currency manipulation," "steel price dumping," and semiconductor export restrictions.

Bitcoin/US Dollar (orange) compared to S&P 500 Index Futures (red) and Gold (blue). Source: TradingView / Cointelegraph

One reason for Bitcoin's recent lack of momentum is that it has risen 24% over the past 30 days, while the S&P 500 index futures rose 7% during the same period, and gold prices remained flat. Investors believe that further divergence between Bitcoin and traditional markets is unlikely, especially considering its 30-day correlation with the stock market remains as high as 83%.

In addition, the market value of Bitcoin has now surpassed that of silver and Google, making it the sixth largest tradable asset in the world.

The largest tradable asset in the world: USD. Source: 8marketcap

The news that Strategy acquired 13,390 BTC from May 5 to May 11 has also raised concerns among investors. Since BlackRock and Strategy collectively hold 1.19 million BTC, accounting for about 6% of the circulating supply, some traders worry that Michael Saylor's company bears primary responsibility for supporting the price of Bitcoin.

Critics like Peter Schiff predict that the continuously rising average purchase price of Strategy could ultimately lead to losses and force the company to sell part of its holdings to cover borrowing costs. However, this scenario seems unlikely to occur, as the company has doubled its capital raising limit, which includes $21 billion in equity and $21 billion in debt.

Macroeconomic events benefit the stock market rather than gold, Bitcoin price stagnates

While traders usually focus on specific events related to Bitcoin, the most likely reason for Bitcoin weakening around $105,000 is the broader macroeconomic conditions. Although the suspension of tariffs directly benefits the stock market, its impact on scarce assets like Bitcoin is somewhat negative. For example, due to a decrease in demand for safe-haven assets, gold prices fell by 3.4% on May 12.

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Gold/US Dollar (left) vs US Dollar Index (right). Source: TradingView / Cointelegraph

Gold usually shows an inverse relationship with the US Dollar Index (DXY), which climbed to its highest level in 30 days on May 12. Although the US GDP (declined by 0.3% in the first quarter, the sales of pending home sales increased by 6.1% month-on-month in March, the strengthening dollar indicates increased investor confidence.

As Bitcoin's price approaches $105,000, investors lack confidence, at least partly due to reduced demand for scarce assets, as investors believe that the stock market is a more direct beneficiary of the China-U.S. trade agreement. Lowering import tariffs means increased corporate revenue and may improve profit margins.

Given that from May 1 to May 9, a staggering $2 billion flowed into the U.S. spot Bitcoin exchange-traded funds (ETFs), the likelihood of Bitcoin's price dropping below $100,000 remains quite low. After a monthly increase of 24%, the stable demand for Bitcoin indicates that the adoption by institutional investors, rather than the retail investors’ "fear of missing out" (FOMO), is a very positive signal for the price of Bitcoin.