By Omkar Godbole (All times ET unless indicated otherwise)
The cryptocurrency markets are currently witnessing a significant downturn, reflected in a broad array of red across charts, with an underlying trend of escalating risk aversion within traditional financial markets. These developments can largely be attributed to recent tariff announcements from President Trump. On late Friday, the President imposed a 25% tariff on imports from Canada and Mexico, alongside a 10% tariff on goods from China. This move has led to retaliatory measures, reigniting a trade war reminiscent of the tensions seen in 2018.
The sentiment shared across social media and among market analysts suggests that the current decline in the crypto market induced by these tariffs may be temporary, with predictions of a swift rebound for Bitcoin (BTC). However, the situation may prove more complex than anticipated.
One contrasting opinion comes from Geo Chen, a macro trader and author of the well-regarded Substack newsletter, Fidenza Macro. Chen argues that the tariffs will likely remain in effect for several months, with the risk of further increases looming due to escalating tensions. Canada has already pledged to retaliate, while China has initiated a lawsuit against the U.S. in the World Trade Organization, creating an environment ripe for potential escalation.
Chen elaborated that these tariffs are primarily a response to concerns about the trade deficit rather than the narrative pushed by Trump regarding the fentanyl crisis. This fundamental shift may take time for markets to digest, potentially leading to prolonged volatility. It’s important to note that the latest tariffs target approximately $1.3 trillion worth of goods—seven times the value of the initial rounds launched in 2018, making this episode distinctly more destabilizing.
Historical comparisons show that during the initial trade war in 2018, the S&P 500 experienced a 9% drop before notably recovering. However, analysts now caution that the depth of potential losses in the current climate may be more severe for risk-sensitive assets like Bitcoin.
One anonymous cryptocurrency trader expressed skepticism about the temporary nature of this downturn, emphasizing that current market conditions do not feel like a passing phase. Vigilance is advised in this unpredictable landscape.
What to Watch
Key upcoming events in both crypto and macroeconomic circles could influence market dynamics:
- Crypto:
- Feb. 4: Pepecoin (PEPE) Halving at block 400,000, reducing rewards to 31,250 PEPE.
- Feb. 5: Boba Network’s Holocene hard fork network upgrade for its Ethereum-based L2 mainnet.
- Feb. 6: Shentu Chain network upgrade (v2.14.0).
- Feb. 13: Gradual delisting of certain stablecoins by Kraken for EEA clients.
- Macro:
- Feb. 3: Report on January’s U.S. Manufacturing PMI from S&P Global.
- Feb. 4: Job Openings and Labor Turnover Survey report by the BLS.
As the situation develops, stakeholders are encouraged to remain informed and exercise caution. The clock is ticking as we navigate this turbulent phase in both cryptocurrency and traditional markets.
