The global economy is undergoing a profound transformation, that was pushing in favour of rise of digital assets, fractionalized investments, and decentralized financial systems as new tools. However, the trade war that United States president Donald Trump just started, with the imposition of high tariffs and consequent response from China and the EU, are creating ripple effects that extend far beyond traditional industries. These policies do not only affect common businesses. The digital economy is not separated from the geopolitical landscape, and its effects are already impacting the digital markets.
Trade wars, characterized by the imposition of tariffs and retaliatory measures, are designed to protect domestic industries and address trade imbalances. However, they often lead to unintended consequences, such as higher costs for businesses, disrupted supply chains, and reduced global trade volumes. In the context of the new economy, these effects are particularly pronounced.
Just taking crypto as an example, we already see how Bitcoin has fallen a 11% in the last 7 days, while Ethereum lost 22% of its value in the same period, according to CoinMarketCap. Industry experts also talk about how mining will become more difficult for people in the West, since the machines used to mine crypto are often imported from Asia.
High tariffs on goods like semiconductors, rare earth metals, and other critical components of the tech industry have a direct impact on the production of digital infrastructure. Blockchain networks, cryptocurrency mining operations, and the development of decentralized applications (dApps) rely heavily on advanced hardware and energy resources.
When tariffs increase the cost of these inputs, the entire ecosystem feels the strain. For example, making cryptocurrency mining less profitable, potentially slowing the growth of blockchain networks.
Volatile environment
Fractionalized investments, which allow individuals to own small portions of high-value assets like real estate, art, or even stocks, are a cornerstone of the new economy. Platforms offering fractional ownership rely on global markets to source assets and attract investors. However, trade wars and tariffs introduce volatility and uncertainty, which can deter investment and reduce the appeal of these platforms. Like we said, digital economy is directly related to the regular stock market. It has been noted many times how Bitcoin, in fact, often acts as a mirror of the common market.
For instance, tariffs on imported goods can lead to inflationary pressures, reducing the purchasing power of consumers and investors. This, in turn, affects the demand for fractionalized assets, as individuals may prioritize essential spending over investments. Digital products like art or collectibles in NFT format, given they are not essential goods, are less likely to drive demand when people are worried about gas, clothing or food products going up in price.
Additionally, geopolitical tensions stemming from trade disputes can erode investor confidence, making it harder for platforms to attract funding or maintain stable valuations for their assets. The digital platforms offer a way for people from all around the world to participate in investments, but with less confidence in free of trade, it is likely that they suffer from fear of heavier taxes.
Instead of cryptos uniting people from around the world, we could see each big economy trying to force the use of its own projects, like the digital euro for the EU, digital yuan for China, and stablecoins connected to the dollar for the US market, introducing the political tensions into the digital world.
Digital assets suffer
Digital assets, including cryptocurrencies and tokenized securities, are often seen as a hedge against traditional economic instability. However, they are not immune to the effects of trade wars and high tariffs. The global nature of digital assets means that any disruption to international trade can have cascading effects on their adoption and value.
Cryptocurrencies market share at April 8.
For example, trade wars can lead to currency devaluations as countries attempt to offset the impact of tariffs. This can drive demand for cryptocurrencies like Bitcoin, which are often viewed as a store of value in times of economic uncertainty. At the same time, regulatory responses to trade disputes can create barriers for digital asset platforms, particularly if governments impose restrictions on cross-border transactions or tighten controls on capital flows.
Moreover, the tokenization of physical assets, such as real estate or commodities, is directly affected by trade policies. High tariffs on construction materials or agricultural products can reduce the value of tokenized assets tied to these industries, making them less attractive to investors. This highlights the interconnectedness of the traditional and digital economies, where policies in one sphere can have far-reaching implications for the other.
Opportunities amidst challenges
It is also true that while the trade war and high tariffs pose significant challenges, they also create opportunities for innovation in the new economy. For instance, the decentralized nature of blockchain technology allows businesses to bypass traditional trade barriers and create more efficient supply chains. Smart contracts can facilitate cross-border transactions without the need for intermediaries, reducing costs and increasing transparency.
Additionally, the rise of digital assets provides an alternative for investors seeking to diversify their portfolios in uncertain times. Cryptocurrencies, stablecoins, and tokenized assets offer new avenues for wealth preservation and growth, even as traditional markets face headwinds from trade disputes. It is in this case when the proposition of Bitcoin as digital gold holds importance.
Problems in the traditional market can highlight the opportunities for the new economy, but for now, it is clear that investors in digital markets are not inmune to Trump’s blow on the table.
Sources:
- BeinCrypto – https://beincrypto.com/trump-tariffs-impact-bitcoin-mining/
- AP News – https://apnews.com/article/bitcoin-trump-tariffs-cryptocurrencies-a14fa06fa5dc4ffb57a411a8d7bddad4
- CryptoNews – https://cryptonews.com/exclusives/trumps-tariffs-spark-market-carnage-whats-next-for-bitcoin/
- Criptonoticias – https://www.criptonoticias.com/finanzas/yuan-digital-gana-terreno-paises-aranceles-estadosunidos/
