Should You Buy Bitcoin While It's 20% Below Its Record High?

Bitcoin's (CRYPTO: BTC) price reached its all-time high of more than $109,000 on Jan. 25. The approvals of its first spot price exchange-traded funds (ETFs) last January, its latest halving (which every four years cuts the rewards in half for mining new coins) last April, three interest rate cuts, and President Donald Trump's election victory last November all brought the bulls back to the top cryptocurrency.

But as of this writing, Bitcoin's price has retreated more than 20% to about $84,000. That decline can be largely attributed to the Trump administration's plans to impose or raise tariffs, which are stoking fears of higher inflation and elevated interest rates. Does this pullback represent a buying opportunity, or will Bitcoin's price drop even further this year?

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Why are Trump's tariffs driving Bitcoin's price lower?

To understand how Trump's tariffs affect Bitcoin, you should pay attention to the relationship between inflation, interest rates, and the crypto market. When inflation runs too hot, the Federal Reserve raises its benchmark interest rates to cool down the economy and prevent the prices of everyday goods and services from skyrocketing.

However, rising interest rates also drive investors away from more speculative investments -- like growth stocks and cryptocurrencies -- and toward fixed-income investments like CDs and Treasury bills, which offer relatively high risk-free yields. That's why Bitcoin's price dropped in 2022 as interest rates rose, but recovered in 2024 as rates finally began to decline.

Bitcoin's bulls expected interest rates to keep declining in 2025 as inflation cooled off. Trump had also publicly pressed the Fed to aggressively cut those rates. However, his own plans for higher tariffs could complicate that situation.

Trump plans to levy 25% tariffs against products from Canada, Mexico, and the European Union, as well as a 10% tariff on Canadian energy products like oil and electricity. Those tariffs are scheduled to take effect on March 4. Canada and Mexico, the U.S.'s two largest trade partners, plan to respond with retaliatory tariffs.

China, which was already hit by a 10% tariff against its imports in early February, could also see those tariffs double on March 4. China is the U.S.'s third-largest trading partner, and has also responded with sweeping tariffs on U.S. products.

All of those back-and-forth threats are sparking fears of higher inflation, which would force the Fed to pause its interest rate cuts or even raise its rates again. Those fears are driving investors away from Bitcoin and other cryptocurrencies again, even though the Trump administration still aims to relax the government regulations for the cryptocurrency market.

Those uncertainties make it hard to buy Bitcoin

The Trump administration might simply be leveraging its threats of higher tariffs to negotiate more favorable trade deals with the country's top trading partners. Many analysts believe that if all of those planned tariffs and retaliatory tariffs were fully implemented, consumer prices in the U.S. would surge and spark even hotter inflation.

If this is just a saber-rattling strategy, then Bitcoin's pullback might be a good buying opportunity. Prominent Bitcoin bulls like Ark Invest's Cathie Wood and Block (NYSE: XYZ) founder Jack Dorsey still expect it to top $1 million during the next few years as more institutional investors increase their exposure to the world's top cryptocurrency.

But if those tariffs take effect and the Fed reverses its interest rate cuts, Bitcoin could easily fall by half before it doubles again. After all, Bitcoin's price has still risen nearly 50% during the past 12 months and is up more than 850% during the past five years -- so plenty of investors could be eager to book profits if interest rates stop falling or start rising.

So should you buy Bitcoin today?

Bitcoin will inevitably remain out of favor as long as the threat of higher tariffs hangs over the market. But if you expect Bitcoin's price to rise during the next few decades, it could still be a good idea to nibble on the cryptocurrency on its recent pullback. It isn't a good idea to go all-in on Bitcoin at these volatile prices, but accumulating some more through these wild swings should smooth out your long-term returns through dollar-cost averaging and pay off during the next few years.

Should you invest $1,000 in Bitcoin right now?

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Block. The Motley Fool has a disclosure policy.