Recent remarks by former President Trump have sent shockwaves through the cryptocurrency market, causing Bitcoin to fall below $86,000. This alarming drop prompts questions about the vulnerability of cryptocurrencies in the context of escalating trade tensions.
How Do Trade Policies Affect Cryptocurrencies?
The Kobeissi Letter offers insights into the downturn in crypto values, noting that the U.S. is pushing for new tariffs with major trade partners, including the EU and China. Trump’s rigidity in these negotiations is influencing market sentiment.
Is Bitcoin Losing Its Safe Haven Status?
Since the trade conflict began on January 20, approximately $800 billion has been lost from the crypto market. Traditionally seen as a hedge against economic uncertainty, Bitcoin’s recent performance contradicts this role, as it fails to rise during inflationary pressures.
Key observations from the current market situation include:
- Bitcoin’s historical correlation with gold has weakened.
- The cryptocurrency market has dropped from a peak of $3.7 trillion to $2.8 trillion in just five weeks.
- A significant correlation with risk assets has been established, as seen in its alignment with NASDAQ100 trends, peaking at 0.88 in 2024.
- Liquidity issues are impacting crypto performance, highlighting vulnerabilities as evidenced by a $760 billion loss on February 1.
- New individual investors are exhibiting more cautious behavior, shifting from long-term holding to reacting swiftly to market fluctuations.
The evolving landscape of cryptocurrencies reveals a shift from traditional investment strategies, indicating a growing need for investors to adapt to these turbulent economic conditions.
