Bitcoin price sells off after Trump’s US-China tariff deal — Here is why

Bitcoin’s recent price action has puzzled some market observers. After reaching a three-month high of $105,720 on May 12th, it experienced a downturn, falling to $102,000 despite a temporary easing of US-China trade tensions. This negative reaction to seemingly positive news highlights the complex interplay between Bitcoin and broader macroeconomic factors.

The 90-day truce in the trade war, involving reductions in import tariffs, initially appeared bullish for Bitcoin. However, the subsequent price drop suggests investors are shifting focus towards traditional markets. Over the preceding 30 days, Bitcoin had gained 24%, compared to a 7% rise in S&P 500 futures and flat performance from gold. This significant divergence may have prompted profit-taking and a reassessment of Bitcoin’s valuation relative to traditional assets. The high correlation (83%) between Bitcoin and the stock market over the past 30 days further supports this view.

The recent acquisition of 13,390 BTC by MicroStrategy between May 5th and 11th has also fueled concerns. With BlackRock and MicroStrategy holding a combined 1.19 million BTC (approximately 6% of the circulating supply), some fear that MicroStrategy’s actions are artificially propping up the price. Critics warn of potential losses for MicroStrategy if its average purchase price continues to rise, forcing them to sell holdings to cover costs. However, MicroStrategy’s recent capital increase ($21 billion in stocks and $21 billion in debt) suggests this scenario is unlikely in the near term.

Beyond specific events, the broader macroeconomic context significantly influences Bitcoin’s price. The easing of trade tariffs benefits the stock market more directly, leading to reduced demand for safe-haven assets like Bitcoin and gold. Gold’s 3.4% drop on May 12th exemplifies this shift. The strengthening US dollar, reaching a 30-day high, further reflects investor confidence in traditional markets.

Despite the recent pullback, Bitcoin’s price remains relatively strong, supported by significant institutional investment. The substantial inflows ($2 billion) into US spot Bitcoin ETFs between May 1st and 9th demonstrate ongoing institutional demand. This sustained interest, coupled with the recent price gains, suggests that institutional adoption, rather than retail-driven fear of missing out (FOMO), is driving the market. This bodes well for Bitcoin’s long-term prospects.