Grayscale Research Report: The macro trend of the United States in the next few years and its impact on Bitcoin

Author | Zach Pandl

Compile | Asher

Editor’s note: This article analyzes the impact of recent changes in U.S. global tariff policy on financial markets, especially Bitcoin’s unique performance in this process. The long-term impact of tariffs on the economy, especially the choice of asset allocation during the period of stagflation, and the performance of Bitcoin and gold in this environment. It analyzes the impact of the current trade tensions on the US dollar and the potential adoption of bitcoin, and finally provides an outlook for the economic outlook in the next few years, pointing out that scarce commodity assets such as bitcoin and gold are likely to receive more attention and demand in a high inflation environment.

Global asset prices have fallen sharply since the announcement of new global tariffs by the US on April 2, and it was only this morning that the suspension of tariffs announced by Trump (excluding China) gradually picked up. However, the initial tariff announcement affected almost all assets, and during this time, Bitcoin’s decline on a risk-adjusted benchmark was relatively small. So, if Bitcoin’s correlation with stock market returns is 1:1, a drop in the S&P 500 should mean a 36% drop in the price of Bitcoin. However, the reality is that Bitcoin has fallen by only 10%, highlighting the significant diversification benefits of holding Bitcoin as part of a portfolio, even in times of deep market retracement.

On a risk-adjusted basis, the decline in the price of Bitcoin was relatively small

In the short term, the outlook for global markets may depend on trade negotiations between the White House and other countries. While the negotiations may lead to tariff reductions, setbacks in the negotiations could also trigger more retaliatory actions, and the actual and implied volatility in traditional markets remains high, making it difficult to predict how the trade conflict will evolve in the coming weeks. Therefore, investors should exercise caution in adjusting their positions in a high-risk market environment. In addition, Bitcoin’s price volatility has increased much less than that of equities, and multiple indicators suggest that speculative traders’ positions in the crypto market are relatively low, and if macro risks ease in the coming weeks, the crypto’s market capitalization should be expected to rebound.

The implied volatility of stocks is close to that of Bitcoin

Regarding Bitcoin, although its price has decreased over the past week, in the longer term, the impact of higher tariffs on Bitcoin will depend on its impact on the economy and international capital flows. Tariffs (and the associated changes in non-tariff trade barriers) could lead to “stagflation” and could lead to a structural weakness in demand for the US dollar, so in this case, the increase in tariffs and changes in global trade patterns may be positive factors for Bitcoin adoption in the medium to long term.

Asset allocation under stagflation

Stagflation refers to an economic state in which economic growth is slow/slowing down while inflation is high/accelerating. Tariffs raise the price of imported goods and therefore (at least in the short term) lead to higher inflation. At the same time, tariffs may also slow economic growth by lowering the real incomes of residents and the adjustment costs faced by firms. In the longer term, the impact is likely to be partially offset by increased investment in domestic manufacturing, with most economists expecting these new tariffs to remain a drag on the economy for at least a year ahead.

From a historical perspective, asset returns in the 70s of the 20th century are the most vivid illustration of the impact of stagflation on financial markets (Bitcoin was too young to backtest its performance). During that decade, U.S. equities and long-term bonds both returned about 6% on an annualized basis, below the average inflation rate of 7.4% at the time, compared to an annualized increase of about 30% in the price of gold, far outpacing inflation.

Traditional assets had negative real returns in the 70s of the 20th century

Typically, extreme cases during periods of stagflation are rare, but their impact on asset returns is broadly consistent over time. The chart below shows the average annual returns of U.S. stocks, government bonds, and gold over different economic growth and inflation cycles from 1900 to 2024.

Stagflation reduces equity returns and boosts gold returns

Historical data reveals three key points:

· Stock market returns typically improve when GDP growth is high or accelerated and inflation is low or slowing. Therefore, during a period of stagflation, stock market returns will fall as expected, and investors may need to reduce their equity allocation;

· Gold tends to perform better when economic growth is sluggish and inflation rises, especially during periods of stagflation, when gold becomes the main hedge against inflation. This suggests that gold is generally a more attractive investment option in this environment;

· Bond performance is closely correlated with changes in inflation. Bond yields are generally better when inflation is low, while bonds typically perform worse when inflation is rising. As a result, bond investors may be exposed to the risk of declining returns during periods of rising inflation.

In summary, different assets perform differently in economic cycles, and investors should adjust their asset allocation according to the macroeconomic environment. Periods of stagflation are particularly important, as they tend to have a negative impact on equities, while gold is likely to see growth.

Bitcoin vs US Dollar

Tariffs and trade tensions are likely to drive Bitcoin adoption in the medium term, due to pressure on demand for the US dollar. Specifically, if overall trade flows with the U.S. decline, and most of the trade flows are denominated in U.S. dollars, then there will be less demand for transactions in U.S. dollars. In addition, if tariffs also lead to conflicts with other major countries, then they could weaken the demand for the dollar as a store of value.

The U.S. dollar’s share of global foreign exchange reserves far exceeds that of the U.S. in global economic output. There are many reasons for this, but network effects play an important role: countries trade with the U.S., borrow in the dollar market, and often export commodities denominated in dollars. If trade tensions lead to a weakening of linkages with the U.S. economy/dollar-based financial markets, countries are likely to accelerate the diversification of their foreign exchange reserves.

The U.S. dollar accounts for far more of global reserves than the U.S. share of the global economy

Many central banks have stepped up their gold purchases in the wake of Western sanctions on Russia. It is understood that with the exception of Iran, no central bank of any other country currently holds bitcoin on its balance sheet. However, the Czech National Bank has begun to explore this option, the United States has also built a strategic Bitcoin reserve, and several sovereign wealth funds have publicly announced their investments in Bitcoin. In our view, disruptions to the dollar-centric international trading and financial system could lead to further diversification of central banks’ reserves, including investing in Bitcoin.

The moment in American history that most closely resembles President Trump’s “Liberation Day” proclamation is probably the “Nixon Shock” of August 15, 1971. That night, President Nixon announced a full 10 percent tariff and an end to the dollar-for-gold regime that had underpinned the global trade and financial system since the end of World War II. The action sparked diplomatic activity between the United States and other countries, culminating in the Smithsonian Institution agreement in December 1971, in which other countries agreed to appreciate their currencies against the U.S. dollar. The U.S. dollar eventually depreciated by 27% between the second quarter of 1971 and the third quarter of 1978. Over the past 50 years, there have been several rounds of trade tensions followed by a weakening of the (partly negotiated) dollar.

It is expected that the recent trade tensions will once again lead to continued weakness in the US dollar. According to relevant indicators, the US dollar is already overvalued, the Federal Reserve System has room to lower interest rates, and the White House wants to reduce the US trade deficit. Although tariffs alter effective import and export prices, a depreciation of the dollar may achieve the desired effect by gradually rebalancing trade flows through market mechanisms.

Son of the Ages – Bitcoin

The abrupt change in US trade policy is causing a correction in financial markets, which will have a short-term negative impact on the economy, however, market conditions over the past week are unlikely to become the norm for the next four years. The Trump administration is implementing a series of policy measures that will have different impacts on GDP growth, inflation, and trade deficits. For example, while tariffs may reduce economic growth and raise inflation (i.e., create stagflation), some types of deregulation may increase growth and reduce inflation (i.e., reduce stagflation), the end result will depend on how well the White House implements its policy agenda in these areas.

U.S. macroeconomic policy will have a range of impacts on growth and inflation

Despite the uncertainty in the outlook, the best guess is that the U.S. government’s policies will lead to continued dollar weakness and overall above-target inflation over the next 1 to 3 years. The tariffs themselves may slow growth, but the impact may be partially offset by tax cuts, deregulation, and the depreciation of the dollar. If the White House also aggressively pursues other growth-enhancing policies, GDP growth is likely to remain relatively good despite the initial tariff shock. Regardless of whether real growth is strong or not, history suggests that sustained inflationary pressures over a period of time can be positive for scarce commodities such as Bitcoin and gold.

Moreover, just like gold in the 70s of the 20th century, Bitcoin today has a rapidly improving market structure – supported by changes in U.S. government policy. So far this year, the White House has implemented a wide range of policy changes that should support investment in the digital asset industry, including the removal of a series of lawsuits, ensuring the suitability of assets for traditional commercial banks, and allowing regulated institutions, such as custodians, to provide cryptocurrency services. This, in turn, has sparked a wave of M&A activity and other strategic investments. The new tariffs are a short-term headwind for the valuation of digital assets like Bitcoin, but the Trump administration’s cryptocurrency-specific policies have been supportive of the sector. Taken together, rising macroeconomic demand for scarce commodity assets and an improved operating environment for investors could be a powerful combination for the widespread adoption of Bitcoin in the coming years.