Why is the Crypto Market Down Today?

In the realm of high-stakes finance, February has unveiled a scenario akin to entering a sophisticated amusement park, but one where the typical ambiance of leisure is supplanted by the palpable tension of investor distress and a prevailing atmosphere of apprehension. This is the current state of the crypto market, where President Donald Trump's strategic trade war has engineered a landscape of intense financial volatility, characterized by a pervasive plunge into the red.

The cryptocurrency market has experienced a significant downturn, with losses in the billions. As of Feb. 3, 2025, the total crypto market capitalization dropped 9.7% over the last 24 hours to $3.07 trillion, marking the lowest level since November 2024.

Key Points:

• Market Dynamics: Known for its volatility, the crypto market's latest dip has been driven by several concrete factors:
  
  • Trump's Tariffs: The announcement of new tariffs by US President Donald Trump on imports from China, Mexico, and Canada has sent shockwaves through global markets, with crypto feeling the brunt.
  • Massive Liquidations: Over $700 billion has been wiped from the crypto market cap due to massive liquidations, one of the largest events on record, surpassing even the tumultuous periods of the COVID-19 market crash and the FTX collapse.
  • Bullish Sentiment Dwindles: Trump's executive orders, imposing a 25% tariff on Canadian and Mexican goods and a 10% on Chinese imports, have dampened the optimism within the crypto community.

Details:

• Tariff Implementation: Effective from Feb. 4, 2025, these tariffs have prompted immediate reactions from affected countries. Mexico’s President Claudia Sheinbaum has countered with retaliatory measures, while Canada's PM Trudeau has mirrored the US's tariff strategy on American goods.
• Crypto Sensitivity:High-risk assets like cryptocurrencies react swiftly to policy changes, leading to a significant sell-off as investors seek to reduce exposure to potential fallout from a trade war.
• Altcoin Performance: Ethereum (ETH) saw a 16% drop, trading at $2,589, while XRP fell by 16.4% to $2.40. Other prominent altcoins like BNB, Dogecoin, Cardano, and Tron have also seen declines of over 10% in the last 24 hours.

Liquidation Impact:

• Scale of Liquidations: Over $2.25 billion in crypto positions were liquidated, with long positions accounting for $1.87 billion of that total. This event has been historic, with over 738,000 traders facing liquidations, the largest single instance occurring on Binance with an ETH/BTC trade worth $25.6 million.
• Market Reaction: Such large-scale liquidations not only drive prices down but also create a ripple effect of fear, pushing more investors to sell, thus intensifying the downward spiral.

Market Cap Decline:

• Total Market Cap Drop: From a peak of $3.57 trillion on Jan. 31, 2025, the crypto market has lost over 21%, hitting a low of $2.81 trillion, marking a loss of more than $700 billion in just four days.
• Technical Analysis: The market cap has breached key support levels, including the 50-day and 100-day SMAs at $3.36 trillion and $3.18 trillion, respectively. The daily RSI has dipped to 33, close to being oversold.

Looking Forward:

• Support and Resistance: The immediate focus is on whether the market can find a floor at $2.81 trillion or if it will test the 200-day SMA at $3.18 trillion. Recovery would see the market cap pushing above the 100-day SMA, with the 50-day SMA as the next psychological barrier.

Conclusion:
The recent turmoil in the crypto market, triggered by Trump's tariffs, underscores the vulnerability of digital currencies to geopolitical shifts. Despite significant losses and liquidations, the crypto market's history of resilience suggests potential for recovery. As we move forward, adaptability and a long-term view will be key for investors navigating this volatile landscape.