As Bitcoin experiences a downturn and U.S.–China tariffs hit 84%, are we witnessing the beginning of another major selloff, or can the Federal Reserve contain the repercussions?
China imposes additional tariffs on the U.S.
In recent days, trade tensions between the U.S. and China have intensified significantly, resulting in noticeable pressure across international financial markets.
On April 6, China retaliated against the U.S.’s tariff increases by introducing a 34% counter-tariff on American products, a direct response to the 34% levy President Trump implemented just days earlier under his new “Liberation Day” tariff strategy.
In retaliation, Trump vowed that if China does not revoke its countermeasure, the U.S. would implement an extra 50% tariff atop the existing ones.
With a 20% base tariff already enforced since March, certain imports from China could face a total tax liability of up to 104%.
The situation escalated further when, on April 9, China announced an extensive 84% tariff on U.S. goods, set to take effect on April 10. This increase encompasses the prior 34% hike, indicating Beijing’s choice to intensify rather than ease tensions.
As a result of these developments, U.S. stock futures plummeted sharply on Wednesday following China’s announcement of broad retaliatory tariffs on American products. Dow futures declined by 790 points, or 2.1%, while S&P 500 futures fell 1.8%. Furthermore, Nasdaq-100 futures dropped by 1.5%.
As of April 8, the S&P 500 dipped below the 5,000 level for the first time in nearly a year, showing an 18.9% decrease from its February peak, nearing the edge of a bear market.
Recent data from LSEG reveals that S&P 500 firms have experienced a staggering $5.8 trillion loss in market value over the previous four days, marking the steepest decline over such a period since the index’s inception. Japan’s Nikkei and other Asian markets have begun to exhibit similar downward trends.
The cryptocurrency sector has also felt the effects. The overall crypto market cap has slid to $2.45 trillion from $3.66 trillion in mid-January, just ahead of Trump’s inauguration.
Bitcoin (BTC), which soared to an all-time high of $109,000 in January, is currently trading around $76,000, with a recent low of $74,500 observed within the last 24 hours. Meanwhile, Ethereum (ETH) has dropped over 20% in the past week, trading near $1,450.
The Crypto Fear and Greed Index, which gauges market sentiment based on price fluctuations, transaction volumes, and social media trends, has fallen to 18, categorizing the environment as one of “extreme fear,” a sentiment not seen since June 2022.
Given these developments, speculation is rising regarding whether the Federal Reserve might contemplate a rate cut soon, and the potential implications for digital assets. Let’s delve into the data.
Interpreting the data
Current trends in the financial markets indicate a phase of prolonged stress rather than a brief correction. The S&P 500 has now entered its 11th-largest consecutive decline since 1940, registering a 12.1% drop over the last four trading days.
This downturn places the current drawdown within the same statistical boundaries as significant drops seen in March 2020, October 2008, and September 2001—periods characterized by broader macroeconomic or geopolitical upheaval.
The volatility index (VIX) has remained high. For three consecutive days, the VIX closed above 45 on April 8. Such a pattern has only been noted three times in recent decades—during the bear markets of 2008, 2020, and now in 2025.
While it is not a predictive signal, it does highlight a broader resizing of risk throughout the system, with volatility remaining above typical thresholds for a sustained duration.
Moreover, bond markets are experiencing ongoing disruption, partly due to unwinding carry trades and lingering inflation concerns that may be more persistent than previously thought.
Several analysts have pointed out that the current volatility is making it increasingly difficult for investors to evaluate risk premiums and anticipate future conditions with certainty.
Additionally, there is a rising skepticism regarding the expectation of swift policy adjustments from the Federal Reserve. Economist Nouriel Roubini and others have indicated that the market may be overly optimistic regarding potential central bank interventions.
According to this perspective, any prospective support is likely to be delayed or limited unless political discourse—particularly from President Trump regarding trade—calms down.
In parallel, Bank of Japan Governor Kazuo Ueda has indicated that interest rate hikes will persist if domestic conditions meet expectations. However, he also acknowledged that global trade tensions remain a critical factor, suggesting that monetary policies abroad might remain reactive until the situation stabilizes.
Will the Fed reduce interest rates?
As the U.S. economy confronts renewed pressures, investors are reassessing the timeline for potential Federal Reserve actions.
Data from the CME FedWatch Tool indicates that the chances of a 25 basis point cut at the Fed’s next meeting on May 6–7 have surged to 54%, a significant increase from just 10% a week ago.
This sudden shift reflects rising concerns that prolonged financial distress, partly resulting from tariff-induced shocks, might adversely affect consumer confidence and business investments faster than expected.
However, the Federal Reserve’s signals remain cautious. San Francisco Fed President Mary Daly expressed this week that there is “no urgency” to lower rates.
Though she acknowledged inflation worries tied to tariffs, she emphasized that economic growth remains robust and policy is currently “in a favorable position.”
Federal Reserve Governor Adriana Kugler shared a similar view, suggesting that the recent increase in inflation may stem from expectations linked to new tariffs rather than a fundamental change in price dynamics.
Kugler reiterated the Fed’s commitment to its 2% inflation target, stressing the importance of anchoring long-term inflation expectations as a priority.
Still, not every expert concurs that a wait-and-see approach is the best course. Financial commentator Peter Schiff, a noted Bitcoin skeptic, argues that the Treasury market is already displaying signs of deeper instability, with yields on 10- and 30-year bonds reaching 4.5% and 5%, respectively. He cautions that without a prompt rate cut and a liquidity boost, the situation could worsen.
Crypto analyst Quinten has noted a similar trend, pointing out that investors are not moving into typical safe havens like government bonds even amid stock price declines.
When both equity and bond markets decline in sync, it often signals tightening liquidity, a condition to which cryptocurrency assets react swiftly.
If the Fed opts to lower interest rates, digital assets could see a beneficial increase in liquidity. Historically, reduced interest rates have directed more capital into higher-risk, growth-oriented assets, including cryptocurrencies.
A rate cut may alleviate current selling pressures and potentially rekindle investor interest, especially in assets like Bitcoin that have exhibited strong performance during periods of expansionary monetary policies.
Conversely, if the Fed chooses to maintain rates and adopts a cautious stance, cryptocurrency markets could remain under pressure, particularly if the broader financial landscape continues to worsen.
Liquidity is a crucial element for cryptocurrency valuation, and without evident signs of relief, the sector may continue to mirror the strain observed in other asset classes.