Why is Crypto Down Today? Trade Wars & Recession Fears Are Shaking Crypto

TLDR

• Crypto market has fallen 6% amid fears over Trump’s trade policies and economic slowdown
• Bitcoin dropped to $79,415 (3.4%) while Ethereum plunged to $1,963 (9.4%)
• Market saw $939M in liquidations over 24 hours, with Bitcoin accounting for $315.44M
• Trump acknowledged potential recession during “transition” period for his tariff strategy
• Strategic Bitcoin Reserve announcement disappointed investors by only including seized Bitcoin rather than new purchases

The cryptocurrency market experienced a steep decline this week, with its total value dropping 6% as investors responded to President Donald Trump’s recent trade policies and growing concerns about economic instability. Bitcoin fell to $79,415, representing a 3.4% decrease, while Ethereum suffered a more severe 9.4% drop to $1,963.

The sell-off comes amid heightened tensions over tariffs targeting major U.S. trading partners. Trump has imposed new trade barriers against Canada, Mexico, and China, rattling markets and triggering widespread selling of risk assets.

These aggressive trade policies have sparked fears of a potential trade war. Many economists worry such conflicts could worsen inflation and increase the cost of imported goods, putting additional pressure on an already uncertain economy.

In a Fox News interview over the weekend, Trump did not rule out the possibility of a recession. He described the country as entering a “period of transition” and acknowledged that his tariff strategy might lead to “short-term economic pain.”

Stock Market

The broader stock market has also felt the impact of these policies. The S&P 500 has erased all gains made since Trump’s re-election in November, falling nearly 3% during that period.

Market participants have shown disappointment over the Strategic Bitcoin Reserve announced by the administration. Many investors had expected the government would make substantial purchases of Bitcoin and other cryptocurrencies to establish this reserve.

Instead, the plan relies solely on cryptocurrencies seized from illegal activities. The government will not be making additional crypto purchases, a revelation that failed to create the buying pressure many had anticipated.

“While establishing a Bitcoin Reserve is a milestone, it does not create immediate buying pressure, disappointing those expecting aggressive accumulation,” explained Haider Rafique, global chief marketing officer at crypto exchange OKX.

The market downturn has triggered massive liquidations across the crypto sector. In the past 24 hours alone, more than $939 million in positions were liquidated, affecting over 331,000 traders according to data from CoinGlass.

Bitcoin led these liquidations with $315.44 million, followed by Ethereum at $245.90 million. Other cryptocurrencies saw substantial losses as well, with XRP down 6.5%, Dogecoin sliding 10%, Solana dropping 7%, and Cardano falling 8%.

The crypto fear and greed index, which measures trader sentiment, has plunged to a reading of 17. This indicates “extreme fear” in the market and represents the lowest level since mid-2023.

Some industry observers have suggested additional factors may be at play. David Bailey, a Bitcoin evangelist and BTC Inc. CEO, claimed in a social media post that the U.S. Department of Justice might be liquidating seized Bitcoin assets, potentially contributing to the price decline.

“If the DOJ has been liquidating America’s Bitcoin with haste (in defiance of the President) ever since getting court approval to do so 3 months ago… then Bitcoin’s price action makes perfect sense,”

wrote Bailey, who attended the recent White House Crypto Summit.

Signals from the U.S. bond market indicate a risk-off environment, adding further selling pressure to both equities and cryptocurrencies. During such periods, traders often shift toward options trading to hedge against potential losses in the spot market.

Since December, when the Federal Reserve announced fewer interest rate cuts than expected for 2025, the crypto market has lost approximately 25% of its total market capitalization. The optimism that followed Trump’s election victory has quickly faded as macroeconomic concerns take center stage.

Ruslan Lienkha, chief of markets at YouHodler, explained the current market dynamics:

“Pessimism has prevailed in the U.S. stock market, and concerns about a potential recession are growing. Given these factors, the current consolidation phase could evolve into a medium-term bearish market.”

Lienkha also noted the correlation between crypto and traditional financial markets: “The crypto market is unlikely to thrive if the equity market undergoes a correction or downturn. While Bitcoin has the potential to evolve into a hedging asset in the future, it is currently perceived by investors as a high-risk asset.”