Cryptocurrency Prices Drop as Trade War Fears Rise
Singapore/Paris, February 3, 2024 — Cryptocurrency markets faced a significant downturn on Monday as heightened fears of a trade war spooked investors, resulting in a widespread selloff across financial markets. Bitcoin, the world’s largest cryptocurrency, reached a three-week low, prompting concerns about its future trajectory.
Bitcoin and Ether Hit Hard
Bitcoin was recorded at a low of $91,441.89 overnight and stood at $95,730.35 as of 0941 GMT, reflecting a decline of 6.2% for the day. This latest drop marks a substantial shift in sentiment for the leading digital asset, which had previously enjoyed stronger performance.
Ether, the second-largest cryptocurrency by market capitalization, experienced even more significant losses. It plummeted nearly 25% since Friday — the most drastic three-day loss seen since November 2022. At the latest update, ether was valued at $2,592.14.
Trade Tariffs Trigger Retaliation
Investor sentiment soured over the weekend following U.S. President Donald Trump’s announcement of new tariffs on imports from Mexico and Canada, set at 25%, and a lower rate of 10% on goods from China beginning Tuesday. This aggressive trade stance incited immediate backlash from both Canada and Mexico, who pledged retaliatory measures. Furthermore, China signaled its intention to contest Trump’s tariffs at the World Trade Organization.
The ramifications of these tariffs have reverberated through various asset classes, with nearly 25% of the top 100 cryptocurrencies experiencing declines of 20% or more within a 24-hour window according to data from CoinGecko. As a result, shares in U.S. cryptocurrency exchange Coinbase fell by 5.5% in pre-market trading.
The Impact on Trump’s Cryptocurrency
In addition to broader market struggles, President Trump’s own cryptocurrency, designated as $TRUMP, has also taken a hit, slipping below the $20 mark after a peak of over $73 shortly before his inauguration. The volatility of cryptocurrencies, which trade continuously including weekends, is particularly sensitive to shifts in market sentiment.
Chris Weston, head of research at Pepperstone, remarked on the situation noting, ‘Crypto is really the only way to express risk over the weekend, and on news like this crypto resorts to a risk proxy.’
Bitcoin’s Resilience Despite Market Conditions
Despite the overall market downturn, Bitcoin has fared slightly better than ether, with some buyers viewing it as a ‘risk-off asset,’ akin to gold. Joseph Edwards, head of research at Enigma Securities, explained that Bitcoin’s relatively modest decline is partially due to its perception as a safer investment compared to ether, which can be more easily sold in times of market stress.
Edwards stated, ‘What we’ve been seeing isn’t so much that ether is being uniquely hard-hit, but rather that bitcoin is holding up uniquely well.’
Investor Discontent and Future Outlook
The current market conditions are compounded by investor disappointment following a strong rally in the wake of Trump’s election. Many had anticipated immediate actions to bolster the cryptocurrency market or alleviate regulatory pressures once he took office. Although Bitcoin recently reached a record high of $107,071.86 on January 20, 2024, many in the crypto community feel let down by the government’s slower-than-expected response to integrating cryptocurrencies into the mainstream financial system.
Paul Howard, senior director at the market-maker Wincent, acknowledged some setbacks in the administration’s approach towards digital assets, stating, ‘Some of Trump’s moves have fallen short of what people bullish on crypto were expecting.’ However, he remains optimistic about potential growth in the cryptocurrency market, believing that friendly policies from the U.S. government in the long term will overshadow short-term volatility driven by macroeconomic concerns.
Conclusion
As cryptocurrency prices continue to trend downward amidst external economic pressures, stakeholders will be attentively monitoring developments in the trade landscape as well as any government policies aimed at digital assets. The determination of cryptocurrencies as investment vehicles remains in the balance as the market adjusts to new realities.
Reporting by Tom Westbrook, Ankur Banerjee, and Elizabeth Howcroft; Editing by Sandra Maler, Saad Sayeed, and Christina Fincher.
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