US Trade War Sparks Panic Across Crypto Markets

The past 24 hours have been nothing short of chaotic, driven by escalating trade tensions initiated by President Donald Trump. Markets were rocked as Trump imposed steep tariffs on Canada, Mexico, and China, leading to fears of a global trade war. While some temporary agreements were reached, uncertainty remained high, and the crypto market reacted accordingly.

On February 3, 2025, US stock markets closed lower, with the Nasdaq posting a 1.2% drop. Futures contracts followed the downward trend, and commodities like gold and oil also declined, with gold settling at $2,847 per ounce and oil dropping to $72 per barrel. Meanwhile, Bitcoin experienced heightened volatility, dropping from $102,000 to around $98,800. The broader crypto market followed suit, with major altcoins experiencing significant corrections. The overall crypto market capitalization shrank to $3.44 trillion, reflecting investor concerns over the broader implications of a trade war.

The downturn in Bitcoin was further exacerbated by large-scale liquidations. Coinglass initially reported over $2.2 billion worth of liquidated leverage positions, but Bybit’s CEO later clarified that the actual figure could be between $8 billion and $10 billion due to discrepancies in API data from exchanges. Bybit alone accounted for $2.1 billion in liquidations within 24 hours. The cascading liquidations primarily contributed to Bitcoin’s steep price drop.

Additionally, US spot Bitcoin ETFs saw net outflows of over $234 million, with major funds like FBTC, ARKB, BITB, and HOLD reporting substantial withdrawals. On the contrary, ETH spot ETFs witnessed inflows totaling $83.6 million, highlighting a divergent sentiment between Bitcoin and Ethereum investors.

Temporary Respite: US-Mexico and US-Canada Trade Agreements

The initial shock in markets was somewhat alleviated when news broke that both Mexico and Canada had reached temporary agreements with the US, delaying the immediate imposition of tariffs. Mexico, for instance, secured a one-month grace period after agreeing to deploy 10,000 National Guard troops along its border and collaborate with the US on security and business initiatives. This de-escalation provided short-term relief to markets but did not completely restore confidence, as the tariff delays are contingent on successful policy implementation.

Similarly, Canada agreed to enhance its border security by investing $1.3 billion in new technology, personnel, and surveillance systems to combat fentanyl smuggling. With 10,000 personnel dedicated to this initiative, the US agreed to temporarily suspend the tariffs. However, the fragile nature of these agreements kept markets on edge, with investors wary of potential escalation in the coming months.

The trade dynamics reflect the US’s dominant position, as both Canada and Mexico are heavily reliant on American markets. Approximately 77% of Canada’s annual exports go to the US, while Mexico sends around 78% of its exports across the US border. In contrast, US exports to these countries account for only a small fraction of its GDP, giving President Trump significant leverage in negotiations.

However, China’s reaction was less accommodating. After being hit with a 10% tariff on US imports, Beijing retaliated by imposing a 15% tariff on select US goods, effective February 10. While specific details of ongoing US-China trade talks remain sparse, analysts predict a prolonged conflict unless meaningful progress is achieved.

Trump also hinted at imposing tariffs on the European Union and the United Kingdom, signaling that the US is prepared to expand its trade offensive if necessary. EU inflation has been on the rise, with the latest figures showing a 2.5% increase, above the projected 2.4%, adding further uncertainty to the region’s economic prospects.

Trump’s Sovereign Wealth Fund: A Step Toward Bitcoin Reserves?

Amid the trade chaos, President Trump made a landmark move by signing an executive order establishing the US’s first-ever Strategic Sovereign Wealth Fund. The fund aims to invest in strategic assets like infrastructure, technology, and natural resources to bolster the country’s long-term financial stability and protect national interests.

The crypto community sees this development as a potential precursor to the creation of a US Bitcoin reserve. While the initial focus of the fund is on traditional assets, the flexibility of its mandate could allow a portion of the funds to be allocated toward Bitcoin investments without requiring congressional approval. Notably, Cynthia Lummis, a long-time Bitcoin advocate and newly appointed Chair of the US Digital Assets Committee, hailed the move as a major step forward.

Lummis emphasized the importance of Bitcoin as a strategic reserve asset, suggesting that it could complement the existing gold reserves and provide additional support for the US dollar. With 19 US states now proposing Bitcoin reserve bills, the nation is moving steadily toward greater crypto adoption at both state and federal levels.

Investor Sentiment: Altcoin Holders Face Mounting Pressure

The recent downturn revealed a significant divide among investors based on their asset allocation. A survey conducted by prominent crypto analyst Thuận found that most respondents held a larger proportion of altcoins in their portfolios compared to Bitcoin. This imbalance left many investors vulnerable to the sharp price corrections seen across altcoin markets.

Altcoin holders who entered positions during bullish periods were particularly affected by the sudden downturn. For long-term investors with strong conviction, the price dip presented an opportunity to accumulate more assets at discounted prices. However, those with weaker positions or higher cost bases experienced heightened anxiety, highlighting the importance of strategic entry points and risk management.

Thuận noted that investor psychology remains consistent across cycles—fear, greed, and panic continue to influence market behavior. Seasoned investors with long-term strategies were less affected by the volatility, while newcomers faced emotional challenges as they saw their holdings lose value.

Trump’s Trade Offensive Extends Beyond North America

In addition to tensions with Canada, Mexico, and China, President Trump is now targeting the EU and the UK with potential tariffs. While Trump has criticized the US-EU trade relationship as “terrible,” he hinted that a deal with the UK could be reached due to the more balanced trade dynamics between the two nations.

EU inflation concerns add another layer of complexity, as rising costs could exacerbate the region’s vulnerability to external trade shocks. Meanwhile, Christine Lagarde, President of the European Central Bank, reiterated her skepticism about Bitcoin being included in EU reserves. Nonetheless, some EU member states, like the Czech Republic, are exploring the feasibility of Bitcoin reserves as part of a broader diversification strategy.

Additional Market Developments

Eric Trump made waves on X by declaring that now is an opportune time to accumulate more Ethereum. His statement reflects a growing belief among high-profile figures that altcoins like ETH still hold significant upside potential despite recent setbacks.

El Salvador, the first country to adopt Bitcoin as legal tender, proposed that the US could lease space in its high-security prison system to house convicted criminals in exchange for financial compensation. The funds would be used to dollar-cost average (DCA) into Bitcoin, highlighting the nation’s commitment to long-term Bitcoin accumulation.

Coinbase received regulatory approval from the UK’s Financial Conduct Authority (FCA) to operate as a Virtual Asset Service Provider (VASP), further cementing its presence in the region. This move positions the UK as Coinbase’s largest market outside the US, with expanded services for both retail and institutional clients.

Meanwhile, UBS, Switzerland’s largest bank, is piloting a gold-backed token project using the ZKsync Layer-2 network on Ethereum. This innovative solution allows clients to trade tokenized gold, bridging traditional finance and blockchain technology while offering real-time settlement options.

Strategic Adaptation in Volatile Markets

The recent market turmoil, driven by geopolitical tensions and large-scale liquidations, underscores the importance of strategic agility. As President Trump’s trade policies unfold and the US inches closer to establishing a Bitcoin reserve, investors must balance short-term risks with long-term opportunities. With Ethereum showing resilience through inflows into spot ETFs and sovereign wealth funds potentially paving the way for institutional Bitcoin adoption, the evolving landscape demands a disciplined, forward-thinking approach. Those who stay informed and adaptable will be best positioned to navigate the volatility and capitalize on the next phase of crypto growth.

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