Digital asset markets shed nearly $125 billion in value Friday after President Donald Trump announced plans to impose substantial tariffs on Chinese imports and scrapped a scheduled meeting with President Xi Jinping. The selloff, which began at 10:57 a.m. Eastern Time, sent Bitcoin and Ethereum tumbling as institutional traders moved away from risk assets in response to renewed trade tensions between the world's two largest economies.
What to Know:
- Total cryptocurrency market capitalization fell from approximately $4.27 trillion to $4.10 trillion within hours of Trump's announcement, with Bitcoin dropping to $116,000 and Ethereum sliding to $4,104.
- Forced liquidations across exchanges totaled more than $824 million in 24 hours, with leveraged long positions accounting for over $670 million of those losses.
- The cryptocurrency decline mirrored traditional markets, where the S&P 500 lost $1.2 trillion in market value within 40 minutes, underscoring digital assets' growing correlation with equities during macroeconomic shocks.
Market Decline Reflects Broader Risk Aversion
The speed of the downturn caught many traders off guard. Alternative cryptocurrencies suffered steeper losses than major tokens, with Solana and XRP each falling more than 2%.
Data from CoinGecko shows the market capitalization decline represented one of the sharpest intraday drops in recent months.
Liquidation figures reveal the extent of leveraged exposure in the market. Exchange data indicates that traders betting on price increases bore the brunt of forced position closures. The $824 million in total liquidations suggests many market participants had been using borrowed funds to amplify their positions, a strategy that backfired as prices fell rapidly.
Bitcoin maintained relative stability compared to smaller tokens. The leading cryptocurrency by market value held above $118,000 despite the selloff. Ethereum, the second-largest digital asset, showed greater volatility and finished the day below $4,200.
Wall Street's reaction preceded the cryptocurrency market's decline by minutes. The S&P 500's $1.2 trillion loss in 40 minutes sent ripples through global financial markets. Traders in digital asset markets responded by unwinding positions and moving capital into stablecoins, which are designed to maintain fixed values against the U.S. dollar.
Trump's statement on social media platform X indicated that China had been "sending letters to Countries throughout the World" regarding export controls on rare earth elements and other production materials. He characterized China's recent actions as "very hostile," though he did not provide specific details about the tariff increases he plans to implement. The cancellation of the meeting with Xi eliminates what many analysts had viewed as a potential opportunity to ease tensions.
Trade War Concerns Drive Institutional Response
Market analysts pointed to the abrupt policy shift as evidence of renewed instability in U.S.-China relations. The announcement revived memories of previous trade disputes that roiled global markets in 2018 and 2019.
Some strategists noted that cryptocurrency markets have become increasingly sensitive to geopolitical developments as institutional participation has grown.
The correlation between digital assets and traditional equities has strengthened over the past two years. What was once considered an uncorrelated asset class now moves in tandem with stocks during periods of market stress. This shift reflects the changing composition of cryptocurrency holders, with hedge funds, family offices and registered investment advisers now representing a significant portion of trading activity.
Volatility measures across cryptocurrency exchanges spiked following Trump's announcement. Options markets showed increased demand for downside protection. Traders purchased put options, which provide insurance against further price declines, at elevated prices compared to recent weeks.
The concept of "risk-off" trading describes investor behavior during periods of economic or political uncertainty. In such environments, market participants typically sell assets perceived as speculative, including stocks, cryptocurrencies and high-yield bonds, while moving capital into government securities and cash. Friday's market action followed this pattern. Leveraged positions refer to trades made with borrowed money, which amplify both gains and losses. Liquidations occur when exchanges automatically close these positions because the trader's account value has fallen below required minimums.
Outlook Depends on Policy Clarity
Short-term forecasts suggest continued instability through the weekend as traders assess the implications of potential tariff increases. Bitcoin could test support levels between $115,000 and $118,000. Altcoins, a term encompassing all cryptocurrencies except Bitcoin, face additional pressure due to their higher volatility profiles.
The next one to two weeks will likely determine whether the selloff intensifies or reverses.
If Trump issues a formal executive order implementing the tariffs, or if China responds with retaliatory measures, the downturn could extend for several weeks. Chinese officials have not yet issued a public response to Trump's statements.
Stabilization could begin next week if no concrete tariff measures materialize. Some market observers noted that Trump has previously used tariff threats as negotiating tactics without following through on implementation. However, the cancellation of the Xi meeting suggests a more serious deterioration in relations than previous disputes.
A prolonged trade conflict lasting into November could trigger a broader correction similar to market downturns in 2019 or Federal Reserve-induced selloffs in 2022. Recovery would depend on how quickly policymakers clarify their positions. Institutional investors, who now account for a substantial portion of cryptocurrency trading volume, tend to wait for concrete information before re-entering markets after geopolitical shocks.
Closing Thoughts
The $125 billion cryptocurrency market decline underscores digital assets' vulnerability to macroeconomic and geopolitical developments. Trump's tariff announcement and meeting cancellation created uncertainty that rippled through both traditional and cryptocurrency markets within minutes. Whether the selloff proves temporary or marks the beginning of an extended downturn will depend on forthcoming policy decisions from Washington and Beijing.
