Trump Orders Tariff Imposition, Crypto Market Declines Amid Risk-Off Sentiment
Background Analysis: Trump’s Tariff Policy Causes Global Turmoil
On February 2, 2025, U.S. President Donald Trump signed an executive order imposing tariffs on a wide range of imports from Mexico, Canada, and China. This decision has had a profound impact on the global economic landscape. The tariff hike includes a 25% tariff on most products imported from Mexico and Canada, while a 10% tariff will be applied to Chinese goods. This move triggered strong reactions from the affected countries, with Mexico and Canada announcing countermeasures, while China stated it would respond based on the situation.
Trump’s tariff policy led to a sharp appreciation of the U.S. dollar against other major currencies, which climbed by over 1%. As uncertainty grew around the global trade environment, both stock futures and cryptocurrency prices experienced significant declines. Investors, fearing potential economic slowdown, turned to risk-off assets, driving further sell-offs in traditional markets as well as the crypto space.
Amid these developments, the strength of the U.S. dollar increased the appeal of traditional assets, while cryptocurrencies—known for their inherent volatility—saw dramatic price swings, with Bitcoin and Ethereum leading the charge on the downside.
Crypto Market Reaction: Leverage Amplifies the Downward Trend
Volatility in the cryptocurrency market has always been a point of concern. However, the situation becomes even more volatile when leverage is involved, as it exacerbates price movements. In the wake of Trump’s tariff announcement, the crypto market experienced intense fluctuations.
Due to the widespread use of leverage in crypto trading, many investors use borrowed funds to trade, seeking high returns from price swings. However, when the market turns against them, the leverage effect forces some traders to liquidate their positions, which in turn leads to further downward pressure on prices. This "vicious cycle" of forced liquidations continues until the leveraged positions are fully cleared.
According to Ben Zhou, CEO of Bybit, the liquidation volume during this period far exceeded the reported $2 billion in liquidations. Zhou estimated the total liquidation value to be between $8 billion and $10 billion. Bybit alone recorded over $2.1 billion in liquidations within 24 hours. The data on Coinglass reported approximately $333 million in liquidations, but this figure only captures part of the market, as exchange APIs limit the amount of liquidation data shared.
The events that unfolded from Sunday evening to Monday morning marked one of the largest liquidation events in crypto history, with up to $10 billion in leveraged positions being wiped out. This phenomenon not only led to further price declines but also raised concerns about the risks inherent in the crypto market, especially when external events, such as political developments, trigger massive market reactions.
Crypto Market Moves: Risk-Off Sentiment Pushes Prices Lower
As Trump’s tariff orders took effect, global uncertainty escalated, and investor sentiment quickly turned risk-off. The cryptocurrency market responded by plummeting, as investors sought safer assets amid the escalating trade conflict.
Bitcoin, for example, fell by as much as 8% on the day of the tariff announcement, dropping to $92,798.34. Ethereum also suffered a significant decline. This marked a sharp contrast to the trend of rising interest in digital assets seen in previous years. As fear took hold, cryptocurrencies that were once seen as a store of value began to face downward pressure, as they struggled to maintain their appeal in the face of escalating geopolitical risks.
Despite this short-term downturn, some experts remain optimistic about Bitcoin’s long-term prospects. Jeff Park, the alpha strategy lead at Bitwise, stated that, although the tariffs may have short-term market impacts, the weakening U.S. dollar and ongoing trade tensions could create a favorable environment for Bitcoin in the long run. He argued that the decentralized nature of Bitcoin, combined with its ability to operate outside of traditional financial systems, would likely make it an increasingly attractive hedge against inflation and currency depreciation.
However, short-term dynamics remain a major concern. Trump’s tariff announcement pushed many investors to reconsider the stability of the crypto market. With traders heavily leveraged, forced liquidations intensified the price declines. The increased market volatility reinforced the risks inherent in the crypto space, especially during times of heightened uncertainty.
Response: Tariff Delay Triggers Market Rebound
On Tuesday, following the announcement that the tariff imposition on Mexico and Canada would be delayed, the crypto market saw a slight rebound. Bitcoin surged back to $102,500, while Ethereum climbed to $2,920. This short-term recovery underscores the market’s sensitivity to policy changes, particularly those that affect global trade dynamics.
Despite the brief recovery, the long-term outlook for the crypto market remains clouded. The delayed tariff imposition does not eliminate the broader risks associated with global trade tensions, rising inflation, and potential economic slowdown. As the situation develops, cryptocurrencies may face more volatility, with shifts in sentiment leading to rapid price fluctuations.
Outlook: The Future of Crypto as a Hedge Asset
Looking ahead, Trump’s tariff policies are expected to have lasting implications for the global economy. While the immediate market reaction might have been an overreaction, the long-term effects of trade wars, rising interest rates, and inflation could lead to an increasing role for cryptocurrencies as hedge assets.
As uncertainty in traditional markets continues to rise, more investors may seek out digital assets like Bitcoin and Ethereum to protect their wealth. With central banks facing limitations in their ability to control inflation, cryptocurrencies may become more appealing as a store of value. The decentralized nature of these assets, coupled with their potential for high returns, positions them well in an environment where traditional assets are increasingly volatile.
However, the volatility of the crypto market will remain a key challenge. The use of leverage in crypto trading continues to amplify price swings, and any negative market events could lead to severe short-term price corrections. Thus, while cryptocurrencies offer exciting potential for long-term growth, investors must remain cautious and mindful of the risks involved.
Conclusion: Trump’s Tariff Policy and the Impact on the Crypto Market
Trump’s decision to impose tariffs on Mexico, Canada, and China has created significant turbulence in global markets, with the cryptocurrency market feeling the brunt of this shock. The resulting risk-off sentiment led to a sharp decline in crypto prices, as investors sought safer assets. The heightened volatility, amplified by the use of leverage, created a cascade effect of forced liquidations that deepened the market downturn.
While the short-term outlook remains uncertain, the long-term potential for cryptocurrencies as hedge assets continues to grow. The decentralized nature of Bitcoin and other digital assets positions them as viable alternatives in an increasingly volatile global economy. Nonetheless, investors should remain vigilant and approach the crypto market with caution, considering both the opportunities and risks that come with trading in this highly speculative space.
As the geopolitical situation evolves and more economic data becomes available, the crypto market will likely experience further volatility, but it may also continue to gain recognition as an important asset class in the global financial landscape.
