🚨 US-China Trade Ease Pushes Bitcoin Over $100K: Moody's Downgrade Adds Uncertainty
Today Korean Economic News | 2025.05.18
📌 US-China Trade Ease Pushes Bitcoin Over $100K…Moody's Downgrade Adds Uncertainty
💬 As the US and China significantly reduced their mutual trade tariffs, Bitcoin price broke through $100,000. However, Moody's downgraded the US national credit rating from 'Aaa' to 'Aa1', creating new uncertainty in the market. While money continues to flow into Bitcoin ETFs, the credit downgrade could trigger a preference for safe assets, requiring attention to future volatility.
1️⃣ Easy Understanding
The world's two largest economies, the US and China, have eased their trade war, helping Bitcoin reach the historic $100,000 milestone. However, Moody's credit rating agency lowered America's credit rating, making markets nervous again.
The US-China trade war that started in 2018 has reached a turning point after 7 years. The US reduced tariffs on Chinese products from 25% to 15%, while China also significantly lowered tariffs on US agricultural products and energy. This move is seen as both countries trying to reduce the economic burden from the prolonged trade war and find new growth opportunities.
In this environment, Bitcoin finally broke through the symbolic $100,000 barrier. Bitcoin, which was around $40,000 at the beginning of 2024, has increased 2.5 times in just a year and a half. US Bitcoin ETFs (Exchange Traded Funds) have been receiving billions of dollars every week since the start of the year, showing how much institutional investors are interested.
But the celebration was short-lived. Moody's, one of the world's three major credit rating agencies, downgraded the US national credit rating from 'Aaa (highest grade)' to 'Aa1'. The main reasons were that US government debt exceeded 130% of GDP and political divisions increased uncertainty in fiscal policy. When a country's credit rating goes down, the government has to pay more interest when borrowing money, which eventually burdens the entire economy.
Markets are confused by these mixed signals. While improved trade relations are positive for the global economy, the US credit downgrade is creating concerns about the dollar and US Treasury bonds, which are considered safe assets. Experts expect short-term volatility but believe trade normalization will have a bigger long-term impact.
As the global economy enters a new phase, investors need to be more careful. When investing in highly volatile assets like Bitcoin, thorough research and risk management are especially important.
2️⃣ Economic Terms
📕 Trade Tariffs
Trade tariffs are taxes imposed on goods imported from foreign countries.
- They are imposed to protect domestic industries or resolve trade imbalances.
- Higher tariffs increase the price of imported products, increasing the burden on consumers.
📕 Bitcoin ETF
Bitcoin ETF is an exchange-traded fund that invests in Bitcoin, which can be easily bought and sold on stock exchanges like stocks.
- Individuals can invest in Bitcoin without directly storing Bitcoin.
- After the US approved Bitcoin spot ETFs in 2024, institutional investor inflows increased significantly.
📕 National Credit Rating
National credit rating is a grade that evaluates a country's ability to repay borrowed money on time.
- Credit rating agencies like Moody's, S&P, and Fitch provide these evaluations.
- Higher ratings allow countries to borrow money at lower interest rates.
📕 Safe Assets
Safe assets are assets that maintain stable value even during economic crises.
- US Treasury bonds, gold, and the US dollar are typical safe assets.
- During market uncertainty, investors flock to safe assets, creating a "flight to safety" phenomenon.
3️⃣ Principles and Economic Outlook
✅ Impact of US-China Trade Relationship Improvement on Global Economy
Let's look at how the normalization of US-China trade relations affects the world economy.
First, stabilization of global supply chains and cost reduction are expected. Due to the US-China trade war, many companies moved their production bases from China to Vietnam, India, and other countries, which cost them significantly. With tariff reductions, companies can build more efficient supply chains and reduce production costs. Cost reduction effects are expected to be particularly significant in industries with active intermediate goods trade, such as semiconductors, automobiles, and machinery. The International Monetary Fund (IMF) analyzed that a 10% reduction in trade tariffs could increase global GDP by 0.5%.
Second, it will contribute to consumer price stabilization. Tariffs are ultimately passed on to consumers as costs, so when tariffs are reduced and import prices fall, it helps overall price stability. Particularly in the US, falling prices of Chinese daily necessities and consumer goods could ease inflation pressure. This could influence the Federal Reserve's interest rate policy, possibly increasing the likelihood of early rate cuts. China can also expect food price stabilization from increased imports of US agricultural products and energy.
Third, positive effects are expected for emerging and developing countries. Economic growth recovery in both the US and China means expansion of major export markets for these countries. Countries that export raw materials and intermediate goods can particularly benefit from increased demand. Also, as global investment flows disrupted by US-China conflicts normalize, foreign direct investment (FDI) to emerging countries is expected to increase. However, countries like Vietnam and Mexico that benefited from US-China conflicts may see their relative influence decrease.
Improved US-China trade relations can lead to structural changes in the global economy beyond simple tariff reductions. However, strategic competition between the two countries still exists, so conflict elements will remain in technology and security sectors.
✅ Background and Outlook of Bitcoin Breaking $100,000
Let's analyze the background and future prospects of Bitcoin breaking the historic $100,000 mark.
First, massive fund inflows from institutional investors are the key driving force. After the US SEC approved Bitcoin spot ETFs in 2024, about $80 billion has flowed into Bitcoin ETFs from major asset managers like BlackRock and Fidelity since the beginning of the year. This means more institutions now see Bitcoin not just as a speculative asset but as a portfolio asset. Institutions focusing on Bitcoin's role as an inflation hedge and digital gold are purchasing Bitcoin for long-term investment purposes. Companies like MicroStrategy and Tesla also hold Bitcoin for financial diversification, expanding the demand base.
Second, supply constraints and halving effects support price increases. Bitcoin is limited to a total of 21 million coins, and every four years, a "halving" event cuts the amount of newly created Bitcoin in half. After the April 2024 halving, mining rewards were cut in half, significantly reducing supply pressure. At the same time, institutional investors' long-term holding strategies further limit the amount of Bitcoin circulating in the market. Currently, about 70% of Bitcoin has not moved for more than a year, and this lack of liquidity is accelerating price increases.
Third, improved regulatory environment and mainstream adoption have improved investor sentiment. The Trump administration's crypto-friendly policy stance and regulatory clarification in various countries have increased investor confidence. Particularly, spot ETF approvals, banks being allowed to offer crypto services, and the possibility of pension funds investing in Bitcoin have strengthened institutional infrastructure. Legal tender adoption by countries like El Salvador and Central African Republic, and US state governments considering strategic Bitcoin reserves are also positive factors. Previously skeptical investment banks like Goldman Sachs and JP Morgan are now expanding crypto services, increasing acceptance in mainstream finance.
Bitcoin breaking $100,000 represents crossing an important psychological resistance level, with some forecasts suggesting it could rise to $150,000. However, high volatility remains a risk factor requiring careful approach to investment.
✅ Background and Market Impact of Moody's Credit Rating Downgrade
Let's examine the background of Moody's US credit rating downgrade and its impact on financial markets.
First, rapidly increasing US government debt is a major concern. US national debt now exceeds $33 trillion, reaching 130% of GDP. While fiscal spending increased significantly due to COVID-19 pandemic response, infrastructure investment, and defense spending increases, tax revenue growth has not kept pace. Particularly, social security and healthcare spending due to aging population continues to increase, creating structural fiscal pressure. The Congressional Budget Office (CBO) projects that if current trends continue, the debt ratio will reach 150% of GDP by 2034.
Second, fiscal policy uncertainty due to political polarization is a factor in the credit downgrade. In recent years, the US has repeatedly experienced political conflicts over debt ceiling negotiations. Growing differences in fiscal policy directions between Republicans and Democrats make predictable fiscal management difficult. Also, reaching political consensus on structural reforms like tax reform and welfare system reorganization is becoming increasingly difficult, raising doubts about securing long-term fiscal soundness. Moody's assessed that such political uncertainty constrains the US's fiscal management capability.
Third, the credit rating downgrade can have various impacts on global financial markets. Directly, it could increase pressure for US Treasury yield rises. Investors might demand higher yields as compensation for increased risk. This could increase the US government's interest burden, creating a vicious cycle that worsens fiscal pressure. It could also have long-term effects on the dollar's status as the world's reserve currency, potentially raising the relative standing of other currencies like the euro or yuan. However, considering the fundamentals of the US economy and the dollar's liquidity, short-term changes are expected to be limited.
Moody's credit rating downgrade is a warning signal that the US should more actively pursue fiscal soundness. However, considering the basic strength of the US economy and the dollar's dominant position, short-term market shocks are expected to be limited.
4️⃣ In Conclusion
Bitcoin breaking $100,000 due to US-China trade easing and Moody's downgrade of the US credit rating show that global financial markets have entered a new phase. This is a complex situation where opportunities and risks coexist.
The improvement in US-China trade relations is definitely a positive signal. The easing of the 7-year trade war will help in many ways: normalizing global supply chains, stabilizing prices, and recovering economic growth rates. Considering the economic interdependence of both countries, trade normalization is expected to bring vitality to the global economy.
Bitcoin breaking $100,000 is a symbolic event showing that digital assets have become mainstream investment assets. Continued interest from institutional investors and fund inflows through ETFs are increasing Bitcoin's price stability and growth potential. However, high volatility and regulatory risks remain factors that need careful management.
On the other hand, Moody's downgrade of the US credit rating represents concerns about the fiscal soundness of the world's largest economy. Rapidly increasing government debt and political polarization are factors that could threaten US economic stability in the long term. However, considering the fundamental strength of the US economy and the dollar's status as the reserve currency, short-term shocks are expected to be limited.
For investors, it's important to build portfolios that comprehensively consider these mixed signals. While paying attention to global companies and emerging market assets that could benefit from trade normalization, risk management considering US fiscal risks and cryptocurrency volatility is necessary.
Most importantly, financial beginners and young professionals should focus on sufficient learning and gradual investment approaches to gain experience in such rapidly changing market conditions, rather than making risky investments. Don't be tempted by short-term profits, but achieve your financial goals through stable asset allocation with a long-term perspective.