Will Trump's US-China trade war help Bitcoin surge?

Bitcoin could become an investment option as large capital flows leave traditional financial markets in search of higher-risk assets.

Donald Trump's plan to impose high import tariffs on Chinese goods is putting enormous pressure on the world's second-largest economy. In that context, Bitcoin could become the main beneficiary. The yuan hit a 16-month low earlier this week, and experts predict it will continue to depreciate in the coming months.

Chart of the Chinese yuan. Source: Tradingeconomics

According to David Brickell, Director of International Distribution at FRNT Financial, the yuan's slide will spur capital outflows from China, and some of that will pour into Bitcoin. This is not new; Mr. Brickell reiterated that in 2015, when China devalued its currency, the price of Bitcoin tripled in just a short time.

Bitcoin's growth expectations in January of this year were also driven by positive predictions from many analysts. Experts from Bernstein and Standard Chartered expect Trump's presidency to provide strong support for cryptocurrencies, forecasting that Bitcoin could reach $200,000 by the end of 2025.

The number of BTC on CEX exchanges plummeted before the fall on January 8, 2024. Source: Coinglass

In the short term, 10x Research believes that Bitcoin will hit $120,000 just before Trump's inauguration on Jan. 20, 2025. This is reinforced by the pro-crypto pledges Trump made during the presidential campaign, along with the appointment of prominent figures such as Paul Atkins and David Sacks to strategic positions related to crypto and AI.

At the same time, China's economy continues to struggle, from slow growth to a prolonged downturn in the real estate market. The country's government had to announce a $284 billion economic stimulus package by September 2024. This is the largest stimulus package since the COVID-19 pandemic.

The China 2-Year Bond Yield Source: Michael Burry

However, pressure remains mounting as international investors worry about China's economic situation, especially as the yuan has just fallen to record lows this week. In this context, Bitcoin could become a safe option for capital flows seeking to exit China amid tightening capital controls.

In short, the effects from Trump's tax plan and China's economic instability are creating a favorable environment for long-term Bitcoin growth despite investors exiting in the short-term frame. Especially when macro factors seem to be on the side of the crypto market.