The cryptocurrency market is currently reeling from the impact of newly announced tariffs by former President Donald Trump, which have triggered panic sales across various digital currencies. Over the weekend, Bitcoin fell by more than 10%, dipping from over $105,000 to under $91,000 at one point. Other cryptocurrencies like Ethereum and prominent altcoins such as Cardano and Solana faced even steeper declines, with Ethereum losing around 26.5% of its value.
This drastic market correction stems from the announcement of tariffs, including 25% on imports from Mexico and Canada and 10% on goods from China, effective February 4. Trump justified these measures as part of his strategy to combat drug smuggling and illegal immigration. The immediate reaction to these tariffs has been characterized by widespread sell-offs among riskier assets, including tech stocks and cryptocurrencies, leading to what many experts are calling the largest liquidation cascade in crypto history.
According to reports, over $2.3 billion worth of leveraged crypto positions were liquidated within just one day, with most crashes occurring in altcoins. The market now finds itself facing uncertainty, primarily due to growing concerns of a potential trade war, which has caused investors to flee from riskier assets.
This turmoil is reminiscent of previous market reactions to political changes. Following Trump's victory in November 2024, the cryptocurrency market initially surged, capitalizing on the promise of regulatory reform and the end of Operation Choke Point 2.0. Traders anticipated new, crypto-friendly policies which pushed Bitcoin's price from $67,000 to $108,000. Now, the market is witnessing the classic 'sell the news' phenomenon, as political unrest, including conflicts in the Middle East, is affecting investor sentiment, alongside the restrictive signals from the Federal Reserve.
The volatility observed recently is significant; Ethereum momentarily traded around $2,100—a level not seen since December 2023. This worst-hit segment of the crypto market reflects the dominance of Bitcoin, which now constitutes about 61% of the total cryptocurrency market capitalization, the highest level of Bitcoin dominance observed since March 2021.
Looking forward, the situation remains precarious. Historically, extreme liquidation events often signal local bottoms, hinting at the possibility of stabilization followed by consolidation. Despite the current turmoil, analysts maintain optimism based on the potential for advantageous regulatory modifications, particularly as institutional acceptance of cryptocurrencies continues to grow.
Market insiders, such as Jeff Park from Bitwise Asset Management, express cautious optimism, citing the potential weakening of the U.S. dollar and lower interest rates as possible long-term boons for Bitcoin if the current trade tensions persist. Others, such as crypto analyst Michael van de Poppe, caution against underestimations of the downturn, warning of more turbulence as institutional investors potentially capitalize on the panic sales instigated by retail investors.
While most cryptocurrency prices have been under considerable pressure, experts see Stablecoins as potential benefactors, turning to them as safe havens during volatile times. The impact of these developments on the broader financial ecosystem is yet to be fully assessed, as the crypto market grapples with new realities brought about by Trump's tariffs.