Trump’s recent tariff threats against major US trading partners have sent shockwaves through the cryptocurrency market, triggering a significant sell-off. The MVIS CryptoCompare Small-Cap index experienced its steepest two-day decline in almost three years, plummeting as much as 21% on Monday following an 11% drop the previous day. Ether (ETH), the second-largest cryptocurrency, suffered a dramatic plunge of up to 27% before partially recovering. Bitcoin (BTC) demonstrated greater resilience, trading down approximately 2% to around $95,145 as of Monday morning in New York.
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Ether’s Sharp Decline and Market Liquidations
The severity of Ether’s decline caught many traders unprepared. Numerous investors holding long positions, anticipating a recovery against Bitcoin, were forced to unwind their bets as the market shifted. This triggered a cascade of liquidations, amplifying the downward pressure.
“This situation echoes a familiar pattern: a macro-economic shock triggers a market pullback, leading to the liquidation of leveraged positions,” explained Matthew Hougan, chief investment officer at Bitwise. “Ethereum was particularly vulnerable due to significant liquidations within the decentralized finance (DeFi) space, given that ETH is DeFi’s native currency.”
The widespread market downturn extended beyond cryptocurrencies. Stock markets across North America, Asia, and Europe also declined after Trump’s tariff threats against the European Union, adding to existing levies on Canada, Mexico, and China.
Trump’s Trade Policies and Crypto Market Uncertainty
The crypto market’s sharp decline highlights the unexpected volatility introduced by Trump, despite being considered the most pro-crypto US president. Following a rally after his election in early November, most leading digital tokens have experienced significant year-to-date losses.
“Trump’s tariff war is impacting the broader financial landscape,” commented Caroline Bowler, chief executive officer of BTC Markets. “Concerns surrounding trade wars, potential stagflation, and recessionary risks are rippling across altcoins and Bitcoin.”
The MVIS CryptoCompare Small-Cap index’s two-day plunge marked the steepest decline since the May 2022 TerraUSD stablecoin implosion, according to data compiled by Bloomberg.
Crypto Market Reaction and Future Outlook
Despite previous optimism surrounding Trump’s pro-crypto stance, including a January executive order establishing a working group to clarify regulations for US crypto firms, the recent tariff announcements have significantly impacted market sentiment.
Sean McNulty, head of APAC derivatives at digital-asset prime brokerage FalconX, noted a strong “bid for downside” over the weekend as investors hedged against broader global macro ramifications. While Bitcoin has fared better than smaller, more speculative tokens, the overall market remains vulnerable.
CoinGlass reported over $2.2 billion in liquidated bullish crypto positions within a 24-hour period, characterizing it as the “biggest crypto crash.”
“The risk of a prolonged trade war with China and US allies presents a challenging environment for the volatile and rate-sensitive digital asset space,” stated Sean Dawson, head of research at crypto trading platform Derive.xyz. He suggested potential support for Ether in the $1,900 to $2,000 range, with options markets indicating a 25% probability of ETH reaching $2,000 before the end of the month.
The overall crypto market capitalization decreased by roughly $360 billion on Monday, according to CoinGecko. Even memecoins recently launched by Trump and Melania Trump were affected, trading significantly below their peak values.
Conclusion: Trade War Concerns Weigh Heavily on Crypto
The cryptocurrency market has experienced a significant downturn in response to escalating trade war concerns fueled by Trump’s tariff announcements. While Bitcoin has demonstrated relative stability, altcoins, particularly Ether, have suffered substantial losses. The market’s reaction underscores the interconnectedness of global macroeconomics and the digital asset space, highlighting the vulnerability of cryptocurrencies to external shocks and policy uncertainties. The potential for a protracted trade war continues to weigh heavily on investor sentiment, creating a challenging environment for the crypto market in the near term.
