Bitcoin is rising slightly for the second day, remaining stuck below $85,000. Alternative cryptocurrencies, such as Ethereum and Solana, are also rising today, both more than 2%, at their peak.
Bitcoin and cryptocurrency gains are emerging amid visually signs of a possible de-escalation in the trade conflict between the United States and other countries, with negotiations with Japan beginning.
This contributed to gains in Asian stock markets, a positive opening for European stocks, and a rise in US stock index futures—which could herald a positive opening in New York.
Conversely, this recovery in Bitcoin comes amid underlying signs of a possible further escalation in the trade conflict with China, coupled with weakening risk appetite among investors and traders, which may suggest that any upside may be short-lived.
On the trade front, Donald Trump announced “big progress” after beginning negotiations with the Japanese delegation regarding trade terms. These negotiations are the first of their kind since the announcement of wide-ranging tariffs two weeks ago.
While the acceleration of momentum toward settling the tariff conflict with countries around the world is expected to ease concerns about a global trade war, the biggest stumbling block lies in settling the conflict with China, which appears poised to escalate beyond a tariff war. This could keep markets extremely cautious.
The Trump administration is not only seeking to reduce the trade deficit with China, but also to rally other countries against it. According to the Wall Street Journal, the United States is using tariffs as a tool to pressure trading partners to limit their dealings with China. This will be done by preventing the flow of Chinese goods into the United States through their territories and and not to absorb cheap Chinese industrial goods. The plan also includes the possibility of delisting Chinese stocks in the United States stock market.
This comes at a time when China will find it difficult to deepen its partnerships with countries to besiege the United States, which the latter is seeking the same for China. This is due to China’s trade practices, which other countries may view as unfair, in addition to its weak protection of intellectual property rights and its bias toward Russia in the context of the war in Ukraine, according to another report from The Journal.
Therefore, if China finds itself besieged—remember, China relies on its exports to drive growth—and Trump’s escalation continues, whether through tariffs or other indirect restrictions from third parties, it may resort to more effective channels of pressure to harm US interests. For example, Max Boot, in an opinion piece in the Washington Post, argues that the ability of China launching cyber-attacks is very real in the context of this accelerating escalation. This, in turn, could be another step in escalating the conflict beyond a tariff war.
Even without the conflict spiraling out of control, tariffs themselves continually raise concerns about fueling inflation and reducing or even contracting growth in the United States. This is what Federal Reserve Chairman Jerome Powell emphasized yesterday when he warned that tariffs could lead to higher prices for consumers and higher unemployment for the economy.
Given these concerns, and amid the lack of signs of de-escalation and Trump’s continued confusion in decision-making, Bitcoin is finding insufficient investor appetite to revive the uptrend.
Bitcoin spot exchange-traded funds have been unable to consistently add positive net inflows in recent weeks and continue to record massive outflows. They are also on track for their third consecutive week of negative net inflows. Since the beginning of the week until yesterday, the ETFs have recorded outflows of more than $90 million, and the past two weeks have seen a total of nearly $900 million outflows, according to SoSo Value figures.
The futures market—which typically drives short-term momentum—is also showing signs of weak sentiment. According to CoinGlass figures, the open-interest-weighted futures funding rate continues to decline and has fallen below zero in recent hours, coinciding with the price increases today and yesterday. This may suggest a lack of appetite from traders to fund their leveraged long positions to avoid risk. A reversal in the funding ratio is typically followed by a sideways or bearish price trend. Therefore, I believe that today’s Bitcoin rally may reverse soon unless we witness a change in market fundamentals that could support a return of risk appetite and revive the uptrend.
