Trump Tariffs Ignite Crypto Showdown as Ether Plummets by Over 26%

Over the weekend, Donald Trump announced new tariffs on imports from Canada, Mexico, and China, leading crypto investors to reduce their exposure to risk.

As a result, Ether—the second-largest cryptocurrency—dropped as much as 26.53% to $2,135 on Monday. This represented its most significant decline in nearly four years and its largest intraday percentage decrease since May 2021.

Trump heightened global tensions by signing an executive order that enforces new tariffs on these countries. This action, long anticipated by Trump, indicates a significant change. It has ignited a fierce international conflict, with each nation vowing to implement further countermeasures.

Trump’s tariffs impact on the crypto market today pic.twitter.com/XWF3C4L7m7

— CoinGecko (@coingecko) February 3, 2025

Trade War Concerns Trigger Widespread Crypto Sell-Off

In reaction, Bitcoin prices fell sharply, reaching a low of $92,460 and dropping below $100,000 for the first time since early January. This decline was part of a larger market sell-off, as investors moved towards safer assets amid concerns of inflation and economic instability caused by the trade conflict.

Additionally, other cryptocurrencies experienced declines: XRP lost 23% of its value, Solana fell by 7.5%, and Dogecoin decreased by 24.5%. In light of Trump’s tariffs, crypto traders actively reduced their holdings across various tokens.

Following the tariff announcement, more than $2 billion in Bitcoin liquidations occurred immediately, according to CoinGlass data. These liquidations included both long and short positions. However, an astonishing $1.83 billion came from long liquidations, indicating that bullish traders were unexpectedly affected by the market’s rapid decline.

Global Trade Issues Diminish Demand for Bitcoin and Other Cryptocurrencies

Tariffs hinder global trade and slow economic growth, which in turn reduces disposable income and consumer spending. As a result, investors typically have less capital available to invest in cryptocurrencies. Furthermore, certain trade policies can strengthen the US dollar, increasing the cost of Bitcoin and other dollar-denominated assets for international buyers, thereby decreasing demand.

Moreover, cryptocurrencies have become more closely tied to traditional financial markets. Consequently, when trade tensions lead to fluctuations or declines in stock prices, crypto values often decrease as well, reflecting a broader shift in investor sentiment.

Analysts Discuss Long-Term Gains Versus Short-Term Volatility

Analysts are split regarding the long-term implications. Some anticipate that the tariffs could weaken the dollar and lower US interest rates, potentially benefiting Bitcoin in the long run. On the other hand, others caution that the trade conflict might trigger immediate inflationary pressures and market corrections.

Markus Thielen from 10X Research noted that although Bitcoin nearly broke out on Friday, Trump’s signing and implementation of the initial round of tariffs led to a market pullback.

Thielen further explained that despite the market largely anticipating Trump’s tariffs on February 1, their enforcement still disrupted the Bitcoin rally and threatened critical technical support levels.

Additionally, while investors were aware of the tariffs, they had primarily focused on the DeepSeek saga, underestimating the geopolitical repercussions and the potential for retaliatory actions from global leaders.

“While Bitcoin has historically been viewed as a hedge against traditional market volatility, its recent performance underscores a growing sensitivity to global economic developments,” stated Ryan Lee, chief analyst at Bitget Research. “The current reaction highlights how geopolitical tensions and policy decisions are increasingly influencing cryptocurrency market dynamics.”

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