The cryptocurrency market is currently facing heightened volatility, largely influenced by recent statements made by former President Donald Trump. Amid fears of potential tariffs on imports, significant sell-offs have occurred across various cryptocurrencies, particularly altcoins.
On February 3, 2025, the price of Ether (ETH), the second-largest cryptocurrency by market capitalization, fell by a staggering 16% within just one hour, reaching $2,368. Although it later rebounded to approximately $2,521, this marked a substantial 38% decline since its recent peak of $4,078 recorded on December 17, 2024. Other altcoins, including Avalanche (AVAX), XRP (XRP), Chainlink (LINK), and Dogecoin (DOGE), each experienced declines of over 20%, contributing to an overall market downturn where the crypto market capitalization plummeted by 11.4% to $3.17 trillion, as reported by CoinGecko.
According to Markus Thielen, founder of 10x Research, the sharp decline can be attributed to multiple stop-loss triggers reaching their limits. “The strong decline of altcoins indicates a wave of stop-loss triggers,” he explained. He noted the dwindling trading volumes observed over the past weeks, which signify “waning demand and lack of investor conviction.” Despite the anticipation of tariffs, Thielen remarked, investors failed to price these developments effectively as they were preoccupied with previous market news.
Market reactions to Trump's proposed tariffs have mirrored activities within U.S. stock markets. Futures for the Nasdaq 100 dropped nearly 2.7% following the tariff announcement, with the S&P 500 and Dow Jones Industrial Average also seeing declines of 2% and 1.5% respectively. The Crypto Fear & Greed Index, which gauges market sentiment, plummeted 16 points, indicating prevailing anxiety among investors. It currently stands at 44 out of 100, marking the first time this value has fallen below this threshold since October 11, 2024.
Bitcoin (BTC), though also affected by the recent turmoil, displayed relatively more resilience. It saw its price drop by 6.8% to around $94,743 but experienced less drastic declines compared to other cryptocurrencies. Interestingly, Bitcoin’s dominance increased from 61.1% to as high as 64%, as indicated by TradingView data. “The increasing Bitcoin dominance without a corresponding rise of the entire crypto market cap suggests risk-averse traders are shifting from altcoins to Bitcoin,” Thielen added.
Solutions to the challenges facing the cryptocurrency market may hinge on broader market conditions. Analysts caution against dismissing the possibility of lasting uncertainty influencing prices long-term. Ali, another prominent cryptocurrency analyst, previously warned followers about the TD Sequential Indicator generating sell signals for XRP when it lingered between $3.2 and $3.3. This indicator accurately predicted the bearish trend, as XRP has since plummeted over 40% within four days, forming significant bearish patterns and raising alarms about potential failures to maintain key technical support levels.
Despite the sharp declines, there are arguments for optimistic long-term outcomes for specific cryptocurrencies. For example, Solana has been forecasted by analysts to potentially reach $1,000 by 2025, significantly above its current trading price of under $200. The outlook remains bullish, particularly as projects on the Solana blockchain continue to increase momentum.
Nevertheless, the underlying sentiment warns of possible continued downward adjustments if cryptocurrencies fail to effectively react to either market stimuli or changing dynamics of financial news, including political declarations. Investing during these turbulent times necessitates careful analysis and professional guidance.
Overall, the intersection of political commentary and market reaction highlights the importance of vigilance among cryptocurrency investors. A bearish trend following Trump's remarks serves as a reminder of the volatile nature inherent to digital currency investments, underscoring the need for strategic approaches when determining market entry and exit points.