China's rare earth export controls trigger a financial war! Analyst: The collapse of the dollar hegemony benefits Bitcoin.

Bitcoin has once again fallen into the vortex of high-risk geopolitical confrontation. After President Trump announced a 100% new tariff on Chinese imports and implemented comprehensive export controls on key software, China's export controls on rare earths have become a retaliatory weapon. Analysts point out that if China's export controls on rare earths continue to escalate, it will undermine the stability of the US dollar and promote the process of de-dollarization, which is long-term favourable information for Bitcoin as a safe-haven asset.

China's Rare Earth Export Control: A Geopolitical Nuclear Weapon

China's export control of rare earths has become a key weapon in the escalation of the trade war. Rare earths are critical raw materials for high-tech industries, including smartphones, electric vehicles, military equipment, and semiconductor manufacturing, all of which heavily rely on rare earth elements. China controls about 70% of global rare earth production and 90% of rare earth processing capacity, and this monopolistic position gives it strong bargaining chips in the trade war.

When the Beijing government announced new restrictions on the export of rare earth minerals, it was seen as a strong countermeasure against the United States. Former Vice Minister of Finance Zhu Guangyao stated in June this year that “the strategic purpose of the United States promoting stablecoins is to maintain the hegemony of the US dollar.” The key for China to respond to this financial challenge lies in the development of stablecoins pegged to the renminbi. This statement indicates that China is viewing financial instruments as part of geopolitical games.

The impact of China's rare earth export controls goes far beyond the trade level. Rare earths are strategic materials for the U.S. defense industry, with elements needed for everything from F-35 fighter jets to precision-guided weapons. Limiting rare earth exports not only strikes at the U.S. technology industry but also touches the core of national security. This escalation of strategic countermeasures marks a new phase in U.S.-China confrontation.

Analysts believe that if China's export controls on rare earths continue to escalate, it will accelerate the restructuring of global supply chains and the process of de-dollarization. When the US dollar can no longer effectively protect the strategic interests of its trading partners, its status as an international reserve currency will be called into question. This structural change may, in the long run, promote the adoption of non-sovereign currencies such as Bitcoin.

Bitcoin plummets 13%: Trade war reappears with March script

The “Rally October” that started with Bitcoin rising nearly 18% quickly deteriorated after President Trump announced a 100% new tariff on Chinese imports and implemented comprehensive export controls on critical software. The market responded quickly, with Bitcoin plummeting more than 13% from a high of over $126,000, dipping to a low of $107,000, and more than $19 billion in leveraged positions evaporating within days, of which over $9.4 billion disappeared within 24 hours.

Trade news has spread to the cryptocurrency market, and a familiar feeling has swept across the entire market. The pullback from March to May, triggered by similar geopolitical events, resulted in a nearly three-month long 30% drop, and this echo is hard to ignore. The current decline pattern is highly similar to previous ones, raising analysts' concerns about the duration of the adjustment.

Behind the price trend, the mechanism is clear yet brutal. As volatility soars, the liquidity across exchanges has become fragmented. The chaos in the altcoin market has intensified sell-offs. The collapse of USDe stablecoin and a series of liquidation events reveal how closely intertwined cryptocurrency liquidity is with global macro risks and the headline impacts from Washington and Beijing.

Even though the Federal Reserve's dovish comments have sparked a risk appetite, the speed and intensity of deleveraging have exposed structural vulnerabilities. Cryptocurrency is a high beta liquidity asset, and it gets punished when systemic risks soar. This characteristic often puts Bitcoin at the forefront during geopolitical conflicts.

Three Mechanisms for Bitcoin Decline:

First Layer: Emotional Shock: The escalation of the trade war has triggered a risk-off sentiment, leading to the sell-off of risk assets.

Second Layer: Liquidity Exhaustion: Exchange liquidity fragmentation, buy orders cannot effectively absorb selling pressure.

Third Layer: Chain Settlement: Leveraged positions are forcibly liquidated, forming a sell-off spiral.

172 listed companies' holdings: institutional confidence remains strong

However, behind the turmoil, the Bitcoin industry has not given up. Institutional portfolios may have reduced their risks, but Bitcoin's status as a macro hedge tool seems to remain solid. Currently, more than 172 listed companies hold Bitcoin. Even as ETF outflows increase, retail buyers have poured over 1.1 billion dollars into the spot market during the market downturn.

This resilience is particularly evident in the sell-off triggered by China's export controls on rare earths. Although there have been sharp price fluctuations in the short term, long-term holders have not exited the market on a large scale. The holdings of 172 listed companies indicate that institutions still have confidence in the long-term value proposition of Bitcoin. These companies incorporate Bitcoin into their balance sheets, often due to concerns over fiat currency depreciation and expectations of long-term appreciation of digital assets.

An inflow of 1.1 billion USD from retail investors surged into the market during times of fear, indicating that the contrarian investment strategy of “being greedy when others are fearful” is in effect. These smart investors believe that the decline caused by geopolitical issues is temporary and that the fundamental logic of Bitcoin remains unchanged. Once the trade war settles, Bitcoin's price may quickly recover lost ground.

Adjustments may continue until November: Warnings from historical patterns

Nevertheless, headwinds may persist. Econometrics indicate that previous declines may only be resolved once risk appetite recovers, which could take nearly three months. Bitcoin is currently struggling to maintain support above 107,000 USD, while the October market is evolving into a war of attrition, with all eyes focused on the Sino-U.S. trade tensions sparked by China's rare earth export controls.

If the trend from March to May repeats, the turmoil caused by the macroeconomy may last until November, when Bitcoin's long-term trend will resume. This timeframe prediction is based on historical patterns: adjustments in the cryptocurrency market triggered by geopolitical conflicts typically last for 2 to 3 months, until the market fully digests uncertainty and reassesses risks.

The 30% pullback from March to May provided an important reference. That adjustment began from the peak in March and took about 10 weeks to bottom out, followed by several weeks to re-establish an upward trend. If the current adjustment follows a similar pattern, starting from early October, the adjustment could last until the end of November or early December.

However, history does not simply repeat itself. There are differences between the current market and that of March: Bitcoin ETF has been operating for a longer time, institutional holdings are more solid; the Federal Reserve's policy stance may be more dovish; the global liquidity environment is also different. These factors may accelerate or delay the end of the adjustment.

Long-term Impact of China's Rare Earth Export Controls: Accelerating Dollarization

(Source: Trading View)

Analysts believe that if China's export controls on rare earths continue to escalate, it will accelerate the collapse of the dollar. The logic chain is: Rare earth controls weaken the technological and defense advantages of the United States → U.S. global influence declines → Confidence in the dollar as a reserve currency is damaged → Countries seek alternatives to the dollar → Non-sovereign currencies like Bitcoin benefit.

The long-term effects have not yet fully reflected in the prices. In the short term, the market's reaction to China's rare earth export controls is risk-off selling, but in the long term, if the dollar system is indeed damaged as a result, Bitcoin may become the biggest beneficiary. Currently, volatility is a characteristic, not a defect; if history can serve as a guide, then the recovery of cryptocurrencies will not come from predictions, but from a gradual return of risk appetite and liquidity.