Bitcoin (BTC) price surges as US-China trade breakthrough and cooling inflation create 'perfect storm'

This remarkable performance comes amid a significant improvement in macroeconomic conditions that have boosted market appetite for risk assets

Macroeconomic conditions have improved significantly in recent times, boosting market appetite for risk assets and creating what analysts describe as a “perfect storm” of positive catalysts for digital assets.

This remarkable performance comes amid a significant improvement in macroeconomic conditions that have boosted market appetite for risk assets, creating what analysts describe as a “perfect storm” of positive catalysts for digital assets.

US-China Trade Breakthrough

On Sunday, a major geopolitical development provided substantial relief to global markets when US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer announced a breakthrough trade agreement with China following intensive negotiations in Geneva.

The agreement implements a 90-day reduction in bilateral tariffs, with the United States cutting its rate on Chinese imports from a punishing 145% down to 30%, while China reciprocates by lowering duties on American goods from 125% to just 10%.

While this reprieve is temporary, it marks a significant de-escalation in the trade hostilities between the world’s two largest economies that had threatened to accelerate global inflation and dampened enthusiasm for risk assets in recent months.

Inflation Hits Four-Year Low

Further fueling the crypto rally was Tuesday’s unexpectedly positive inflation report. The US Bureau of Labor Statistics revealed that the Consumer Price Index (CPI) rose just 0.2% in April, bringing the annual inflation rate down to 2.3%—below March’s 2.4% reading and marking the lowest level since February 2021.

This cooling inflation comes as a surprise to economists who had anticipated upward price pressures from the Trump administration’s aggressive tariff policies. According to Brian Coulton, chief economist at Fitch Ratings, “Core goods prices have yet to reflect the impact of the tariff hikes that have taken place since February, while services inflation continues to gradually ease.”

Market Sentiment Shift

The combination of easing trade tensions and cooling inflation has dramatically shifted market dynamics that previously worked against digital assets. During the peak of US-China trade hostilities, investors had demanded higher risk premiums, leading to a flight to safety that benefited traditional safe havens like gold and cash at the expense of cryptocurrencies and other risk assets.

On the heels of its much-anticipated Pectra upgrade, Ethereum has had a phenomenal week – up around 35% as markets return to risk on assets. Source: Brave New Coin Ethereum Liquid Index

The current macroeconomic backdrop has reversed this trend, creating substantial tailwinds for Bitcoin and the broader cryptocurrency sector. Lower inflation also reinforces expectations for potential interest rate cuts, which typically benefit non-yielding assets like Bitcoin.

The macroeconomic backdrop has become more favorable for risk assets in recent times, boosting demand for cryptocurrencies and other assets perceived as riskier.

This shift in market sentiment is evident in the performance of major stock indices. The US stock market, as measured by the S&P 500 index, has reached record highs, while the European STOXX 600 index also hit a 15-month peak on Tuesday.

The broad macroeconomic conditions are now favorable for risk assets, and there is potential for further gains in the coming months, especially if the trade war de-escalation continues and inflation remains low.

However, some analysts urge caution regarding the sustainability of these positive conditions.

Core goods inflation is likely to pick up in the next few months as inventories of goods imported pre-tariff hikes get depleted, said Brian Coulton, chief economist at Fitch Ratings.

This suggests that the current "Goldilocks" environment for Bitcoin, characterized by controlled inflation and reduced geopolitical tensions, may face challenges in the coming months as the full impact of earlier tariff increases works its way through the economy.

For now, however, Bitcoin continues to capitalize on this rare alignment of positive macroeconomic factors, pushing further into uncharted territory above the $100,000 threshold that once seemed unimaginable to all but the most ardent cryptocurrency advocates.