Crypto market collapse under trade war: BTC ultimately cannot escape the fate of risky assets

The Kobeissi Letter pointed out that since the end of January this year, the global encryption currency market has dumped from 3.7 trillion US dollars to 2.8 trillion US dollars in just five weeks, evaporating over 800 billion US dollars in value. BTC has long been seen as a Decentralization hedge against economic uncertainty, but this role seems to be wavering.

(From tariffs to DOGE: How do businesses view the impact of MAGA policies?)

Trade war hit market confidence hard

Since Trump took office on January 20, 2025, and announced the resumption of the trade war policy, the encryption market has experienced severe turbulence. Data shows that BTC has dropped by 25,000 US dollars from its historical high, and fell below 84,000 US dollars on February 27, marking the first such large decline since Trump took office last year.

(Trump announced that the import tariffs on Mexico will be implemented as scheduled, and the temporary suspension period is about to end)

Meanwhile, after Trump imposed a 25% tariff on the European Union, the stock market, led by technology stocks, was in a big dump, with declines ranging from 1% to 8%.

This chain reaction shows that the trade war not only affects the traditional market, but also extends to the encryption currency field, reversing the post-election BTC rally.

BTC is highly correlated with risky assets

Over the past decade, BTC has often been seen as a hedge asset similar to gold. However, a careful analysis reveals that since 2023, the trend of BTC has been almost completely synchronized with the NASDAQ 100, and the correlation with the S&P 500 reached 0.88 at one point in 2024.

Currently, the 30-day rolling correlation of the two data is still close to 0.4, indicating that BTC has shifted from a hedge asset to highly correlated with risk assets. In other words, when the trade war triggers market uncertainty, BTC has long been unable to stand alone, but will instead fall together with the traditional stock market, and even more severely.

The liquidity crunch intensifies the downturn

At the same time, the reduction of market liquidity is another key factor in the big dump of encryption currencies. Looking back at the data since 2020, when liquidity tightens, the encryption currency market often performs weakly. For example, in the rapid collapse on February 1, 2025, the market evaporated $760 billion in market value within 60 hours, highlighting the impact of liquidity on prices.

In addition, during the trade war, funds shifted to the US dollar for hedging, causing the US dollar to Canadian dollar exchange rate to reach its highest level since 2003, further squeezing the market's fund pool of encryption.

Market panic led by retail investors

The behavior of retail investors also played an important role in this decline. In the two days after the election, BTC spot ETF saw an inflow of 2 billion US dollars, and the launch of the TRUMP meme coin attracted millions of retail investors to enter the market.

However, the stability concerns triggered by the trade war have also led to a collective withdrawal of retail investors. On February 25, the BTC spot ETF saw a single-day outflow of $1 billion, setting a historical record, with a total outflow of $2.1 billion over six consecutive days. This 'herd effect' has led to a significant liquidity gap and caused BTC to big dump more than $5,000 in just a few minutes.

(Institutional arbitrage strategy closing fermentation, US BTC spot ETF single-day outflow of 1 billion US dollars, a record high)

The trend of BTC has long been out of touch with gold

In sharp contrast to the fall in BTC, gold has stood out in the trade war. The Kobeissi Letter pointed out that the gold ETF bought 52 tons of gold last week, the most since July 2020, with the price of gold rising by 50% in the past year, marking the best annual performance in a decade.

From 2015 to 2023, BTC and gold have been viewed as hard assets, but now their trends are opposite, indicating that the market has considered gold as the primary global hedge asset, while BTC's hedge position is clearly challenged.

(Bridgewater founder Ray Dalio: BTC may not necessarily become a safe haven asset, I believe more in gold )

Market size increases volatility

Furthermore, the current encryption market is incomparable to that of the last trade war period. The Kobeissi Letter mentioned that during the last trade war, the total value of the encryption market was only about 300 million US dollars. Now, the scale has expanded tenfold, and the popularity has also greatly increased, indicating that the amplitude of market fluctuations will also increase.

In addition, the polarized operation of institutional investors has intensified the instability, such as the surge in short positions of Ethereum since November 2024, exceeding 500% and totaling over 2 billion US dollars, bringing immense pressure to future upward trends.

(Ethereum short positions surged 40% in one week, is it impossible for the shorts to cover or rebound?)

The reality of the trade war: the encryption market is still a risk market

The return of the trade war has revealed the new reality of the encryption currency market: 'Bitcoin is no longer just a hedge asset, but deeply entangled with the risk market.'

The tightening of liquidity, retail panic, and the expansion of market size and volatility have together led to the evaporation of $800 billion in market value. Even though Trump is the most supportive president of encryption currency in history, his trade policies remain a source of pressure on the capital market, casting a layer of uncertainty over the market.

This article, the encryption market under the trade war collapsed: BTC ultimately cannot escape the fate of risky assets first appeared in Chain News ABMedia.