Trump's tariff stick: the cryptocurrency market plummets

Tariff stick

Earlier, US President Trump signed a tariff order to impose an additional 25% tariff on imports from Canada and Mexico and a 10% tariff on energy resources from Canada. The White House said that if there is retaliation against US tariffs, the US may increase tariffs.

In addition, according to Xinhua News Agency, the White House said on the same day that the United States will impose a 10% tariff on all goods imported from the mainland on top of the existing tariffs. Trump said this is consistent with the "protectionist measures" he supports.

Affected by Trump's tariff policy, Japanese and South Korean stock markets fell sharply on Monday. The Nikkei 225 index closed at 38,520.09 points, down 1,052.40 points, or 2.66%, on February 3 (Monday); South Korea's KOSPI index closed at 2,453.33 points, down 64.04 points, or 2.54%, on February 3 (Monday).

According to Coinglass data, the total liquidation of the entire network in the past 24 hours was $2.119 billion, of which $1.78 billion was liquidated on long orders and $270 million was liquidated on short orders. A total of 718,513 people were liquidated worldwide. The largest single liquidation occurred on Binance-ETHBTC, with a value of $25.635 million.

Goldman Sachs strategists said U.S. stocks could fall 5% in the coming months as the Trump administration's latest round of tariffs hit earnings forecasts.

“These announcements surprised many investors, who expected tariffs to be imposed only if trade talks failed,” Goldman Sachs strategist David Kostin wrote in a note. “Our economists see an uncertain outlook but believe the tariffs on Canada and Mexico are likely to be temporary.”

Kostin said that if it continues, the latest tariffs will cause him to lower his earnings forecasts for S&P 500 companies by about 2% to 3%, and that does not take into account the impact of further tightening financial conditions or changes in consumer and corporate behavior. He also warned that the fair value of the S&P 500 could fall by about 5% in the short term as both earnings and stock valuations are hit.

Different opinions

“If tariffs mean a stronger dollar, higher inflation, and a weaker outlook for rate cuts in the near term, then this means less global liquidity for risk assets,” analysts at brokerage firm Bernstein said in a note to clients. “Over longer time horizons, as governments take on higher debt and higher deficits, leading to further currency depreciation, Bitcoin has relative value relative to the dollar, as is evident in Bitcoin’s long-term compounding history. But in the short term, Bitcoin is correlated with risk assets. Therefore, the sell-off in cryptocurrencies is not surprising.”

Bernstein analysts believe that in the long run, the Trump administration believes that cryptocurrencies are strategically important to government governance and national finances, aiming to control inflation by reducing deficits, cost-cutting departments of the government efficiency department led by Elon Musk, and increasing energy production. Although foreign governments may retaliate against tariffs by selling U.S. Treasuries.

But Bernstein expects sovereign nations to hoard gold and Bitcoin as an economic buffer, with the U.S. leading the shift toward supporting cryptocurrencies and more countries likely to follow.

However, Jeff Park, head of strategy at Bitwise Alpha, said tariffs may only be a temporary tool, but the long-term conclusion is that Bitcoin will not only go higher, but also go faster, because both "sides" in the trade imbalance equation want Bitcoin, so the end result is the same: higher prices and faster speeds.

Petr Kozyakov, CEO of crypto payment platform Mercuryo, pointed out that after Trump announced the tariffs on Friday, a wave of FUD swept the cryptocurrency market, and the prospect of long-term interest rate hikes shook all markets around the world. Although Bitcoin has fallen below the $100,000 mark, the king of cryptocurrencies has once again proved itself to be unique, in stark contrast to the altcoins that have fallen across the board.

Aave founder Stani Kulechov said: "Tariffs will raise funds for the United States and increase domestic production, and will also allow other countries to raise funds and increase their domestic production, so that every country participates in the competition for domestic production. This is not a recession, but a reorganization of the entire global economy. For those who see the uncertainty of the stock market crash during the transition, cryptocurrencies will serve as a hedge, and for those who want to reduce the uncertainty of the bond market crash, DeFi income will also serve as a hedge."

Looking ahead

Looking ahead, the global economy will continue to adjust and restructure under the influence of tariff policies and cryptocurrencies. As governments seek a balance between trade protectionism and digital asset strategies, market uncertainty and volatility may increase.

However, this also provides new opportunities for cryptocurrencies and decentralized finance (DeFi) as a tool to hedge risks in traditional financial markets. In the future, we may see more countries adopt Bitcoin and other crypto assets as economic buffers, driving the global financial system towards a more diversified and innovative direction.