President Donald Trump’s recently proposed steep tariffs of up to 25% on certain imports sent shockwaves through financial markets, with Bitcoin prices immediately taking a hit.

Of course, tariffs aren’t new. Governments have long used tariffs to shield home-own industries, gain leverage with trade partners, or boost revenue. However, economic history shows tariffs often fuel inflation.  For example, during the trade tensions in 2018 between China and the United States, Americans saw prices of everyday goods like washing machines rise by as much as 34%.

This raises the question: can Bitcoin offer a solution when tariffs drive prices upward?

Read along to learn how Bitcoin could potentially mitigate inflation. 

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Key takeaways

• Tariffs increase the cost of imports, and businesses often pass these costs on to consumers through higher prices, which can contribute to inflation. 
• Countries facing high inflation, such as Argentina and Turkey, have seen increased Bitcoin adoption as people seek protection from currency devaluation.
• Can Bitcoin offset tariff effects? – Not directly. Bitcoin won’t lower import costs or prevent inflation, but it can serve as an alternative store of value when fiat currencies weaken.
• With a fixed supply of 21 million and a decentralized nature, Bitcoin attracts investors during economic uncertainty. However, its volatility makes it less predictable than traditional inflation hedges like gold.

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How do tariffs fuel inflation?

Think of tariffs as a tax on imported goods. For example, when the U.S. imposes tariffs on Chinese electronics, importers have two options: 

• Absorb the cost (unlikely) 
• Raise prices (much more likely). 

This process fuels cost-push inflation, a scenario in which production costs rise, and consumers end up paying more.

Here’s how it plays out:

1. Higher tariffs → increased import costs.
2. Businesses adjust by raising prices.
3. Consumers pay more for goods or services.
4. Inflation creeps upward.

What happens next?

• Retail price hikes: Companies pass tariff costs to consumers, creating ripple effects across the economy.
• Inflation risks: A general price increase reflected in the consumer price index(CPI) creates inflation. This is determined by comparing the CPI of different periods. For example, if the CPI in the base year is 100 and increases to 110 in the current year, the inflation rate over that period is 10%.
• Price increases beyond taxed items: Domestic producers raise prices due to reduced foreign competition.
• Hoarding: To avoid potential price increases, businesses and consumers often rush to buy goods before tariffs go into effect. This can drive prices up even further.
• Currency weakens: Tariffs can weaken national currencies, affecting import costs and inflation.
• Manufacturing cost increase: Raw materials and components become more expensive under tariffs, raising costs across industries.

Beyond consumer goods, the Tax Foundation’s analysis pointed out that tariffs hit lower-income households the hardest as they often spend a significant share of their income on necessities, often the first to be affected by price increases.

But the impact doesn’t stop at rising prices. Due to uncertainty, businesses delay investments and slow or freeze hiring. This can have lasting consequences, making the long-term economic damage more significant than the immediate cost increases.

Bitcoin as a potential inflation hedge

Conversely, some, such as Bitcoin whale  Michael Saylor, view Bitcoin as protection against inflation because its fixed supply and decentralized nature make it an attractive option when traditional markets face pressure.

What makes Bitcoin a good choice in an inflation-prone environment?

• Scarcity in a print-happy world: Bitcoin’s limited supply of 21 million coins makes it resistant to inflation, unlike government-issued currencies that can be printed at will. This scarcity can become valuable during periods of tariff-driven market volatility. 

• Bitcoin is a store of value: Bitcoin gains appeal during economic uncertainty because it operates independently of government policies. While tariffs drive inflation and currency fluctuations, Bitcoin remains unaffected, preserving wealth. Historically, Bitcoin has outperformed traditional assets, delivering over 20,000% returns in the past decade.
• Decentralization: Bitcoin operates outside government control, making it resilient to trade disputes and currency fluctuations. This independence makes it appealing in times of economic uncertainty.
• Global accessibility: Bitcoin is accessible to anyone connected to the internet. This makes it especially useful when banking services are hard to access or local currencies are shaky. In a world where tariffs drive up costs and complicate trade, Bitcoin offers a way for businesses and individuals to move money across borders without being tied down by traditional financial systems or government-imposed restrictions.

Real-world evidence

Argentina: Inflation hit 211%, and Bitcoin trading volumes doubled as citizens sought protection from peso devaluation.

Turkiye has faced rising inflation, which has reached over 30%, driven by various factors. This has resulted in a significant depreciation of the Turkish lira. In response, many citizens have turned to Bitcoin, as a safer alternative.

Nigeria: Faced with currency instability, many Nigerians use Bitcoin for remittances and payments.

Bitcoin vs. gold: Which is the better hedge?

Gold has been a reliable hedge against inflation for centuries. Its value tends to rise when the cost of living increases, making it a preferred asset during economic uncertainty. Several key factors contribute to gold’s effectiveness as an inflation hedge:

• Limited supply and tangibility—Gold’s physical scarcity and controlled mining output prevent oversupply. Unlike fiat currencies, it cannot be devalued by excessive money printing.
• Historical performance – During high-inflation periods, such as the 1970s, gold prices surged, reinforcing its role in wealth preservation.
• Inverse relationship with the U.S. Dollar – When inflation weakens the dollar, gold becomes cheaper for foreign buyers, boosting demand and increasing prices.
• Real asset preservation – Gold’s price typically rises with inflation, unlike cash or bonds, which lose real value when prices increase.
• Hedge against currency devaluation—When governments expand the money supply, central banks and investors turn to gold, shielding portfolios from currency-specific inflation risks.
• Universal acceptance – Gold’s global liquidity ensures it is acceptable as an inflation hedge worldwide.

So, comparing  Bitcoin vs. gold as a better inflation hedge, here is how it stacks up:

1. Accessibility

• Gold: Acquiring physical gold can be challenging for the average person. It requires purchasing from dealers, storage considerations, and sometimes high premiums.
• Bitcoin:  Numerous online platforms and exchanges make it easy to buy and sell, and peer-to-peer marketplaces like Paxful even allow you to connect directly with other Bitcoin holders.

Considering accessibility, Bitcoin is the clear winner.

2. Supply and scarcity

• Gold: The supply is limited due to its physical nature and controlled mining output, which makes it less susceptible to oversupply. That said, more mining output can increase supply.
• Bitcoin: Bitcoin’s supply is hard-capped at 21 million coins, making it scarce. Its mining process is predictable, adding to its scarcity. It is also important to note that some of these Bitcoins are permanently lost due to the loss of private keys, further reducing the amount of Bitcoins in supply.

Considering supply and scarcity, Bitcoin is the winner here.

3. Historical performance

• Gold: Gold has a long history of being a reliable store of value, particularly during inflationary periods like the 1970s. Compared with other assets, it’s a proven haven, and its recent rally following inflation fears attributed to the new tariffs attests to this. 
• Bitcoin: Bitcoin, while relatively new, has shown volatile price increases, particularly during economic uncertainty, but its historical performance is shorter and less established.

Considering the historical performance, Gold is the clear winner.

4. Relationship with the U.S.dollar

• Gold: Gold’s price has an inverse relationship with the U.S. dollar. This is closely tied to real interest rates in the US. Generally, the dollar strengthens when real interest rates rise, and gold prices often fall. Conversely, lower real interest rates and a weaker dollar often lead to higher gold prices.
• Bitcoin: Bitcoin’s relationship with the dollar is less clear. It can rise or fall based on various factors, including market sentiment, speculation, and interest rate action by the Federal reserves.

On this metric, Gold wins.

5. Real Asset preservation

• Gold: Gold tends to preserve its value during inflation, often rising in price as the cost of living increases.
• Bitcoin: Bitcoin has the potential for high returns, but it can also experience significant losses. Investors are still debating its effectiveness as a real asset hedge

On real asset preservation, gold wins.

6. Hedge against currency devaluation

• Gold: Investors often turn to gold during currency devaluation, as it is seen as a safe haven.
• Bitcoin: Bitcoin is increasingly viewed as a digital hedge against currency devaluation, but its volatility may deter some investors from seeing it as a stable alternative.

Gold has always been the preferred standard to hedge against currency devaluation, but many are increasingly turning to Bitcoin. 

7. Universal acceptance

• Gold: Gold is universally accepted and recognized as a store of value across cultures and economies. Virtually all central banks have gold reserves to hedge against inflation and for stability and growth.
• Bitcoin: Bitcoin is growing in acceptance, but it is not yet universally recognized, and its use as a currency varies significantly by region. Some countries have even outright banned it and restricted its usage or trade.

One universal acceptance: Gold is ahead by a huge margin. 

The Bottom line

Bitcoin can be an inflation hedge, but its volatility, limited adoption, and regulatory uncertainty mean its impact will likely be small for the foreseeable future. On the other hand, gold is steadier and a proven safe haven, but it lacks Bitcoin’s speed and accessibility. A mix of both may be the best strategy in an uncertain economy.

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