Bitcoin’s Bloodbath: Tariffs, Tears, and Tumbling Markets

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Ah, the sweet symphony of chaos! With $1.4 billion in crypto liquidations in a single day, one must wonder: are we merely at the overture, or is this the grand finale? 🎭

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Tariffs rattle the global markets

As of Apr. 7, the global market environment has taken a sharp downturn, triggered by a single policy shift. On Apr. 2, President Donald Trump announced what he called “Liberation Day” tariffs — aggressive import duties that immediately shifted the tone in both equity and crypto markets.

Trump’s tariff regime has been sweeping. Imports from Canada and Mexico now face a 25% duty, while Chinese goods have been hit with an additional 34% tariff. In certain cases, products from other countries are facing combined tariffs climbing as high as 54%.

For Chinese imports, the layered effect of both new and existing tariffs means many goods are now entering the U.S. under an effective rate exceeding 54%.

The impact on the U.S. stock market was swift. By Apr. 4, the market had lost nearly $5.5 trillion in value in just two days. The S&P 500 alone shed $2.4 trillion on Apr. 3, followed by additional steep losses the next day. 

In percentage terms, the Dow Jones dropped over 4,000 points, or 9.48%, the S&P 500 fell 10%, and the Nasdaq plunged 11% — all in a span of 48 hours.

Ripple (XRP) declined 16%, now trading around $1.76, while Solana (SOL) fell to around $101.

BlackRock CEO Larry Fink, in a letter to shareholders, described the current climate as one of “widespread economic anxiety,” adding that such unpredictable tariff moves have made financial planning “impossible” for businesses trying to assess global supply chains.

So, what exactly is driving this wave of sell-offs? How do experts interpret the path ahead? And how much worse could things realistically get? Let’s take a closer look.

Why is crypto down? 

When tariffs rise, so do the costs of imported goods, which typically drives inflation higher, especially when those tariffs are widespread and apply to major trading partners. 

Trump’s announcement, targeting multiple regions, has reignited fears of a global trade war. For investors, this shift in the economic climate changes everything.

In times of economic uncertainty, riskier assets are usually the first to be sold. This includes stocks, but also crypto. Despite being often seen as independent from traditional markets, history shows that during periods of acute stress, digital assets tend to behave more like tech stocks than safe havens.

This pattern was clearly visible in early February, when a previous round of tariffs led to $2.2 billion in crypto liquidations, pushing Bitcoin down to $92,000. Now, this pattern is repeating, but on a larger scale.

Adding complexity to the situation is the interest rate outlook. In a slowing economy, the Federal Reserve would typically be expected to cut rates. However, tariffs complicate that playbook. 

Since tariffs are inflationary, they limit the Fed’s flexibility. If inflation rises, the central bank may be forced to delay expected rate cuts, or even raise rates again.

Higher rates reduce liquidity, and this tends to hurt speculative markets the most. Crypto, being one of the most liquidity-sensitive asset classes, often reacts strongly to these shifts.

This is where institutional sentiment becomes critical. According to The Kobeissi Letter, a widely followed macro newsletter, the market has entered a phase where fear is beginning to dominate.

In a post on X, Kobeissi noted that the market had “lost its orderly nature,” with assets being sold across the board — including traditional safe havens like gold, which briefly dipped below $3,000 per ounce. 

Another clear sign of capitulation?

Even the safe haven assets like gold are selling off sharply.

Until Friday, gold has pushed sharply higher amid tariff uncertainty.

Today, gold is back below $3,000/oz as the rush to the sidelines has accelerated.

Again, more panic.

— The Kobeissi Letter (@KobeissiLetter) April 6, 2025

Such broad-based selling often signals that the market is entering a capitulation phase, where investors are no longer making strategic decisions but are instead focused on preserving capital.

Supporting this shift in sentiment, data from March reveals that institutional capital has been rotating out of U.S. equities at the fastest pace in years, tightening liquidity across asset classes. 

And as capital exits equities, it’s not flowing into crypto. Instead, it’s moving toward short-term cash instruments and defensive plays.

How much worse can it get?

The selloff we’re witnessing may not be the worst of it. If current trends persist, and retaliations escalate as expected, the global economy could be heading toward one of its toughest periods in over a decade.

Let’s begin with trade. According to Oxford Economics, if all major U.S. trade partners respond with reciprocal tariffs, global trade volumes could shrink to levels not seen since the 2008 financial crisis, excluding the COVID-19 period. 

– Trump delaying Tariffs (not happening)

– FED announcing emergency meeting (max 1-2 weeks)

-…

— Michaël van de Poppe (@CryptoMichNL) April 7, 2025

With Bitcoin down nearly 30% from its recent highs, he expects further testing of support levels, possibly as low as $70,000, especially if there’s no delay in tariffs or if the Federal Reserve doesn’t call for an emergency policy meeting.

However, van de Poppe also views these levels as potential long-term buying opportunities: “In 12–24 months from now, you’ll be happy that you’ve bought in these areas,” he said.

Others are framing the current price drop as a setup for a broader shift in narrative. Geoffrey Kendrick, global head of digital assets research at Standard Chartered, notes that Bitcoin could evolve into a hedge against tariff-induced risks.

In a note shared with The Block, he connected the growing U.S. isolationist stance to rising concerns about fiat exposure: “U.S. isolationism is akin to increased risks of holding fiat, which will ultimately benefit Bitcoin,” Kendrick wrote.

He identified $76,500 as a critical support level, marking the high from the day after the U.S. election, and emphasized Bitcoin’s relative strength compared to major tech stocks, aside from Microsoft and Google.

All in all, while short-term volatility may persist, especially with tariff escalations shaping rate expectations and capital flows, the long-term thesis for Bitcoin is gaining traction.

However, caution is still warranted. If tariffs expand further or inflation accelerates, Bitcoin could face renewed pressure alongside broader markets. The market remains highly volatile, so it’s important to trade wisely and never invest more than you can afford to lose.

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2025-04-07 17:07