Should Investors Stay Away From Crypto as the Tariff War Heats Up?

In the 48 hours before new tariffs on Canada and Mexico were scheduled to go into effect, there was a huge sell-off in just about every single cryptocurrency, including market leader Bitcoin (CRYPTO: BTC). At one point, Ethereum (CRYPTO: ETH) was down as much as 25%. More speculative cryptos, such as meme coins, were hit especially hard.

While many cryptos subsequently recovered after the implementation of the tariffs was put on hold, those 48 hours offer a cautionary tale for anyone thinking about investing in crypto as the tariff war heats up. To be successful, investors will need a much finer understanding of where cryptocurrency projects are based, and how much support they have from the Trump White House.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

Bitcoin

One crypto that absorbed less of a hit than other cryptocurrencies was Bitcoin. While Ethereum fell by 25%, Bitcoin retreated by only 7%. Just when it looked like Bitcoin might dip below $90,000, it quickly recovered and now trades near the $100,000 mark.

There is one key reason for Bitcoin's resiliency. Many investors perceive Bitcoin as a hedge against inflation, similar to gold. In fact, in many investment circles, Bitcoin is referred to as digital gold. Thus, if proposed tariffs on Canada, Mexico, and China do lead to higher prices and spiraling inflation for consumers, Bitcoin is one asset that might provide some protection.

Even before the tariffs go into effect (some have already gone into place in the case of China), some high-profile investors thought this might be the case. For example, billionaire Mark Cuban suggested that it might be time to buy Bitcoin back in January. He was fully pricing in the prospect of inflation from the Trump tariffs, and thought that Bitcoin might provide refuge from the storm.

Keep in mind, too, that Bitcoin has historically been uncorrelated with other major asset classes. In other words, Bitcoin can zig when other assets zag. That's good news if you are expecting an economic downturn as a result of tariffs. Stocks might fall, but Bitcoin may not. Thus, even in a worst-case economic scenario, Bitcoin might provide valuable diversification benefits.

Made-in-America cryptos

In addition, made-in-America cryptos could be another investment opportunity to explore if a tariff war expands in scope and size. That's because President Donald Trump ran on a "Make America Great Again" (MAGA) platform, and has repeatedly pledged to make America the crypto capital of the world. So keep a close eye on which cryptocurrencies appear to have the support of the Trump White House.

Image source: Getty Images.

Although cryptocurrencies are by their very nature global and decentralized, it's worth taking a closer look at the specific cryptos held by World Liberty Financial, which is a Trump-affiliated crypto company. Ahead of Trump's inauguration, this company purchased more than $100 million in crypto, and its holdings continue to grow.

Currently, two of the largest holdings of World Liberty Financial are Ethereum and Chainlink. Other smaller holdings include decentralized finance (DeFi) cryptos such as Aave, Ondo, and Ethena.

Bitcoin mining stocks

Given the Made-in-America emphasis of the Trump White House, it's important to reevaluate potential opportunities in the Bitcoin mining sector. There are a number of Bitcoin mining stocks with significant Canadian operations -- such as Hut8, HIVE Digital Technologies, and Bitfarms -- and those are mining stocks that I would avoid for now.

In the event of a trade war, Bitcoin mining companies based in Canada are likely to face rising energy costs and a higher cost structure than U.S.-based Bitcoin mining companies. Thus, before you invest in a Bitcoin mining stock, make sure you understand where they have the bulk of their mining operations.

The case for Bitcoin is stronger than ever

Yes, the recent flash crash in the crypto market was unnerving. And it certainly sent a signal that no cryptocurrency is safe if investors suddenly lose their appetite for all risk assets. But that doesn't mean that investors need to stay away from crypto as the tariff war heats up.

Bitcoin is still a strong investment opportunity, given its potential ability to act as an inflationary hedge. There's a good reason it recovered so quickly to the $100,000 mark. Over both the short and long term, I remain bullish on Bitcoin, no matter how high those tariffs go.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $307,661!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,088!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $536,525!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Learn more »

*Stock Advisor returns as of February 3, 2025

Dominic Basulto has positions in Bitcoin, Chainlink, and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Chainlink, and Ethereum. The Motley Fool has a disclosure policy.