The cryptocurrency market experienced a sharp decline once again, losing over $400 billion in market capitalization in just 24 hours. The drop was triggered by a new trade conflict between the United States and China. Total liquidations reached $2.2 billion, marking one of the largest losses since the collapse of FTX. Details are provided below.
Reasons for the Market Crash
Trump’s Trade War
The sudden market downturn occurred amid President Donald Trump’s announcement of new tariffs: 25% on goods from Canada and Mexico and 10% on Chinese products. This led to panic on the stock market, a drop in the S&P 500 and Nasdaq indexes, and a flight of investors into the dollar and government bonds. Many are already calling it “the worst Monday since the FTX collapse.”
The U.S. Dollar Index (DXY) surged to 108.50, while the yield on 10-year government bonds exceeded 4.54%. A historically strong dollar puts pressure on Bitcoin’s price, as investors shift to traditional safe-haven assets.
Sharp Decline in Bitcoin Network Activity
According to CryptoQuant’s chief analyst Julio Moreno, following the news, activity on the Bitcoin network plummeted. Miners recorded a minimum transaction fee of 1 sat/vB, and the mempool was nearly empty. This indicates a reduced interest in using the network during periods of high volatility.
Massive Liquidations: Over 700,000 Traders Affected
As a result of the market crash, the positions of 714,660 traders were liquidated, totaling $2.18 billion. The largest losses were incurred on long positions, which accounted for $2.2 billion in liquidations. The largest single liquidation occurred on Binance, where one trader lost $25.64 million in a single trade.
Ethereum was among the hardest hit cryptocurrencies, losing 30% over two weeks. Massive sell-offs by large investors led to a 12-month high in the amount of ETH held on centralized exchanges — reaching 16.2 million ETH.
Despite the significant downturn, some analysts believe that Ethereum could recover if it holds above $2,750, although selling pressure continues.
Analyst Forecasts
Daniel Yan, CEO of Matrixport, cited another potential reason for the market decline: a temporary lack of liquidity and an emotional reaction in Asian markets. He expects the situation to stabilize in the coming days.
Matrixport analysts also shared a method to gauge whether Bitcoin’s growth will continue:
“An analysis of the 21-week moving average reflects the asset’s future behavior. As long as BTC remains above this level, it will continue to rise.”
Bitwise specialists also believe that the market will soon recover. They argue that the imposed tariffs will weaken the dollar, which in the long run could lead to Bitcoin’s growth as a safe-haven asset.
On the other hand, Pepperstone analysts are less optimistic about the overall situation:
“Investors are now viewing the crypto market as an indicator of global risk. A trade war can lead to a slowdown in the economy, rising inflation, and further volatility.”
Some experts think that the current crash is just part of a typical market cycle and that buyers will return once the situation stabilizes. They advise against entering the market unless one is prepared for further declines.
What’s Next
The market remains in a state of high volatility. If Bitcoin falls below $90,000, further declines could be expected. Analysts suggest that in such a scenario, Bitcoin might drop as low as $75,000. However, if BTC manages to hold above $95,000, it could resume its upward trend.
Key events that will influence the market in the coming days include:
- U.S. employment and inflation data
- Reactions from China, Canada, and Mexico to the new tariffs
- Further policy actions by the Federal Reserve
The last significant market drop occurred on January 8, when Bitcoin fell by 6% to below $100,000, and total liquidations reached $695 million. This decline was also attributed to the launch of the Chinese neural network DeepSeek, as discussed in our previous report.
This post is for informational purposes only and is not an ad or investment advice. Please do your own research making any decisions.
