Original | Odaily Planet Daily (@OdailyChina)
Author | Fu Ruo (@vincent31515173)
Recently, the cryptocurrency market has continued to decline. Following Trump's announcement of tariff policies, Bitcoin dropped from $105,000 to below $92,000, intensifying market panic. Additionally, several whales transferred their ETH to CEX for selling before today's crash, and many large whales shorted Ethereum, making it the main "victim" of this market downturn.
OKX real-time data shows that as of the time of writing, BTC has dropped to a low of $92,000, currently reported at $94,100, with a 24-hour decline of 5.45%;
Besides BTC, altcoins led by ETH are also facing significant declines, with ETH dropping to a low of $2,100, a maximum decline of over 30% in 4 hours, currently reported at $2,540; SOL has dropped below $190, currently reported at $195.57, with a 24-hour decline of 7.4%;
Due to the overall market downturn, the total market capitalization of cryptocurrencies has also rapidly decreased. According to CoinGecko, the current total market capitalization of cryptocurrencies has fallen to $3.1 trillion, a 12% drop in 24 hours. The trading enthusiasm among crypto users has also declined, with the Alternative fear and greed index reporting 44 today, shifting from greed to fear.
In terms of derivatives trading, Coinglass data shows that in the past 24 hours, the total liquidation across the network reached $2.234 billion, with long positions liquidated at $1.877 billion and short positions at $357 million. By cryptocurrency, BTC saw liquidations of $408 million, while ETH saw liquidations of $609 million.
Below, Odaily Planet Daily analyzes the reasons for the recent market decline.
Reasons: Why did the crypto market plummet at the beginning of the new year?
Trump's tariff policy triggers a decline in global risk assets
Recently, the cryptocurrency market has experienced a significant decline, primarily influenced by the Trump administration's announcement of a new round of tariff policies. On February 1 and February 2, President Trump signed executive orders imposing tariffs on goods from several countries, directly affecting market sentiment, especially in the cryptocurrency market.
First, Trump announced a 10% tariff on goods from China, followed by a 25% additional tariff on imports from Canada and Mexico on February 2. Notably, a 10% tariff will also be imposed on energy resources from Canada. The implementation of this series of tariff policies has triggered a risk-averse sentiment in the market, leading to a sharp decline in cryptocurrency prices.
Industry analysts believe that Trump's tariff policy has exacerbated market uncertainty, causing investors to avoid risk assets and turn to more conservative investment strategies. Caroline Bowler, CEO of BTC Markets, pointed out that Trump's tariff policy has not only affected traditional markets but has also triggered panic selling in the cryptocurrency market.
Daniel Yan, co-founder of Matrixport, believes that the current market sell-off is more due to a lack of liquidity and trend-following trading by commodity trading advisors (CTAs). He noted that although the new tariff policy has limited impact on U.S. productivity and inflation, the market's excessive reaction has led to a short-term decline, but the market is expected to recover soon.
Robert Kiyosaki, author of "Rich Dad Poor Dad," stated on the X platform that while Trump's new tariff policy may lead to a short-term price collapse of assets like gold, silver, and Bitcoin, it also provides more buying opportunities for investors.
El Salvador cancels Bitcoin's legal tender status
On January 30, the Salvadoran Congress passed legislation to amend the Bitcoin law to comply with the International Monetary Fund (IMF) requirements. Ruling party legislator Elisa Rosales stated that this amendment aims to ensure Bitcoin continues to exist as legal tender while promoting its "practical application."
However, on February 2, the Salvadoran Congress quietly passed an amendment to the "Bitcoin Law," deciding to cancel Bitcoin's legal tender status and change it to a fully voluntary use. This modification was made under pressure from the IMF, which had conditioned the approval of a $1.4 billion loan to the government on "reducing the risks of Bitcoin."
As the first country in the world to adopt Bitcoin as legal tender, El Salvador has now abandoned its legal status for Bitcoin, but this move has limited impact on the market, and the country's policy of buying Bitcoin still exists; this action merely satisfies the IMF's requirements.
Ethereum's poor performance in this cycle may lead to abandonment by large holders
Looking back at the current cycle, Ethereum's market performance appears to be weak. Although Ethereum has risen when the market is up, its gains have lagged significantly behind the overall market; conversely, each time the market declines, Ethereum's losses have noticeably intensified, raising concerns.
Since the beginning of the year, criticism of the Ethereum Foundation within the community has been constant. In response to these concerns, Vitalik Buterin stepped in to reassure the community, announcing that a "toll" would be charged for Ethereum's Layer 2 (L2) protocols and that the Ethereum Foundation would undergo restructuring. However, this move seems to have had no significant impact on Ethereum's market performance. In the performance of some well-known altcoins, Ethereum's decline remains among the highest.
Even more disappointing for the community is that whenever the market crashes, the Ethereum Foundation has consistently failed to step in promptly to boost market confidence, while during uptrends, the foundation's address often shows small "selling" activities. This practice may have dissatisfied large holders, further prompting them to sell off their ETH holdings in large quantities before the crash. Even a whale who shorted ETH with 50x leverage did not take profits when ETH dropped to around $2,100, undoubtedly exacerbating market panic.
According to BitMEX co-founder Arthur Hayes, a trading institution's ETH position has reportedly been liquidated, but no relevant institution has confirmed this. If true, the reasons for Ethereum's significant decline in this round may become clear.
However, industry insiders have differing views on the current market. Andrew Kang, a partner at Mechanism Capital, believes that Ethereum may currently be oversold, and the current price could be a buying opportunity, expecting its price to rebound to $2,700.
Summary
The current market decline is mainly influenced by Trump's tariff policy, which directly triggered risk-averse sentiment in the market, leading to significant sell-offs in the cryptocurrency market. Although the market's short-term reaction may be excessive, a lack of liquidity and trend-following trading have also played a role in exacerbating the situation. However, in the long term, this series of policies may have complex effects on the cryptocurrency asset market.
According to an analysis by the Fudan Development Institute on Trump's tariff policy, the deadline for the trade investigation report on April 1 will be a key point in determining whether the tariff policy will escalate further.
Odaily Planet Daily reminds users to be aware of investment risks.
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