Cryptocurrency markets tumbled on Monday, with Bitcoin hitting a three-week low as escalating trade war concerns triggered a widespread sell-off across global financial markets. The heightened tensions and potential economic repercussions sent investors fleeing from riskier assets, impacting the cryptocurrency sector significantly.
Bitcoin, the largest cryptocurrency by market capitalization, plummeted to a three-week low of $91,441.89 before recovering slightly to $95,730.35, representing a 6.2% decline for the day. Ether, the second-largest cryptocurrency, experienced a more dramatic plunge, losing nearly 25% of its value since Friday. This marked Ether’s steepest three-day decline since November 2022, with its price hovering around $2,592.14.
The catalyst for this market downturn was U.S. President Donald Trump’s announcement of new tariffs on imported goods. Over the weekend, Trump imposed a 25% tariff on Mexican and most Canadian imports, along with a 10% tariff on goods from China, effective Tuesday. These protectionist measures sparked immediate backlash from Canada and Mexico, both of whom pledged retaliatory actions. China also announced its intention to challenge the tariffs at the World Trade Organization.
The ripple effect of these trade tensions was felt throughout the cryptocurrency market. Data from CoinGecko revealed that almost a quarter of the top 100 cryptocurrencies suffered losses of 20% or more in value within a 24-hour period. Shares of Coinbase, a major U.S. cryptocurrency exchange, also reflected the negative sentiment, falling 5.5% in pre-market trading. Even Trump’s own cryptocurrency, $TRUMP, slumped below $20, a significant drop from its peak above $73 in January.
The 24/7 nature of cryptocurrency trading, coupled with its increasing sensitivity to broader market sentiment, amplified the impact of the trade war fears. Investors are apprehensive about the potential for tariffs to stifle economic growth, negatively impact corporate earnings, and fuel inflation. According to Chris Weston, head of research at Pepperstone, “Crypto is really the only way to express risk over the weekend, and on news like this crypto resorts to a risk proxy.”
While Bitcoin experienced a less severe decline compared to Ether, this difference can be attributed to several factors. Some investors view Bitcoin as a “risk-off” asset akin to gold, providing a haven during market turmoil. Additionally, the liquidity of Ether makes it easier to sell quickly during periods of market stress, as explained by Joseph Edwards, head of research at Enigma Securities. Edwards noted, “What we’ve been seeing isn’t so much that ether is being uniquely hard-hit (most of the market is down similarly or worse) but rather that bitcoin is holding up uniquely well.”
Adding to the downward pressure on cryptocurrencies is a sense of disappointment among some investors following the strong rally that occurred after Trump’s election. The anticipated pro-crypto regulatory changes and policy initiatives have yet to materialize, leading to a reevaluation of the market’s optimistic outlook.
Bitcoin reached an all-time high of $107,071.86 on January 20, the day of Trump’s inauguration. Driven by hopes of a favorable regulatory environment under the new administration, Bitcoin had surged 40% since the election in early November. The current market downturn underscores the vulnerability of cryptocurrencies to external economic and political factors, highlighting the inherent volatility of this emerging asset class.
In conclusion, the escalating trade war concerns have triggered a significant sell-off in the cryptocurrency market, impacting both Bitcoin and Ether. The uncertainty surrounding the global economic outlook and the potential for further trade disputes continue to weigh heavily on investor sentiment. While Bitcoin’s relative stability suggests its potential role as a safe haven asset, the overall market volatility reinforces the need for cautious investment strategies in the cryptocurrency space.
