Cryptocurrency markets faced a significant downturn today, with major digital assets recording steep losses. Bitcoin fell below $92,000, marking an intraday decline of over 7%. Ethereum dropped more than 26%, while Dogecoin and Cardano saw declines exceeding 30% during trading sessions.
Data from Coinglass indicates that over the past 24 hours, more than 730,000 traders were liquidated, with total liquidation volumes surpassing $2.2 billion.
Hong Kong-listed cryptocurrency-related stocks also declined. At market close, OKG Technology Holdings fell more than 9%, Lanke Blue Valley dropped nearly 7%, and Boyaa Interactive decreased by almost 5%. Exchange-traded funds (ETFs) tracking digital assets in Hong Kong experienced substantial losses, with Harvest Ethereum ETF and ChinaAMC Ethereum ETF both declining around 18%.
Market analysts suggest that recent announcements regarding increased tariffs by former U.S. President Trump have triggered a shift away from risk assets, including cryptocurrencies. Amid rising trade tensions, the U.S. dollar strengthened significantly, with the Dollar Index rising over 1%. Meanwhile, the Euro, Mexican Peso, and Canadian Dollar all fell notably.
Understanding the Market Downturn
On February 2, former President Trump indicated plans to discuss tariff issues with Canada and Mexico. He also mentioned impending tariffs on goods from the European Union, while a decision regarding tariffs on U.K. imports remained under consideration. These statements followed earlier announcements of new tariffs on goods from Canada, Mexico, and China.
Global risk-off sentiment intensified rapidly following these developments, leading investors to reduce exposure to volatile assets, including cryptocurrencies. During trading on February 3, Ethereum, the second-largest cryptocurrency by market capitalization, fell by 26.53% at one point—its largest single-day drop since May 2021. Bitcoin declined more than 7%, briefly touching approximately $91,700. Meme coins and altcoins such as Dogecoin and Cardano (ADA) fell over 30%.
As of 9:40 PM UTC, Bitcoin was still down more than 4%, trading around $94,800. Ethereum remained down over 16%, while ADA, Avalanche (AVAX), and Chainlink (LINK) all fell more than 17%. Dogecoin and XRP both declined over 14%, and Binance Coin (BNB) dropped more than 11%.
Caroline Bowler, CEO of BTC Markets, noted, "The tariff announcements are impacting the entire market. Concerns about trade wars and stagflation-driven recession are affecting alternative currencies and Bitcoin."
Jonathan Yark, Senior Quantitative Trader at Acheron Trading, added, "Ethereum is under more pressure than Solana, Bitcoin, or Ripple due to market expectations that the latter may be included in U.S. digital asset reserves. This has reduced Ethereum's liquidity resilience compared to its peers."
Beyond trade tensions, uncertainty around the Federal Reserve's monetary policy also contributed to the sell-off. Despite previous calls for rate cuts, Trump recently described the Fed’s decision to pause reductions as "the right choice." The Federal Reserve had kept the federal funds rate between 4.25% and 4.5%, halting a series of cuts that began in September due to persistent inflation concerns.
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U.S. Dollar Strengthens Amid Global Volatility
The U.S. dollar recorded substantial gains, with the Dollar Index rising over 1%. The Indian Rupee fell more than 0.6% against the dollar, breaking through 87 to a new low. The Mexican Peso declined nearly 3%, the Euro fell 1.3%, and the Canadian Dollar dropped 1.5%.
Stephen Jen, CEO of Eurizon SLJ Capital, stated, "Trade tensions may escalate in the short term as other nations may feel compelled to retaliate. This should support dollar strength and higher U.S. yields in the near term."
Bullish sentiment toward the dollar reflects expectations that tariffs could increase inflationary pressure, keep U.S. interest rates high, and enhance the dollar's safe-haven appeal. Shoki Omori, Chief Global Strategist at Mizuho Securities in Tokyo, commented, "Although statements from Trump may imply that an overly strong dollar could affect financial markets, the overall outlook remains—tariffs and U.S. domestic inflation may sustain dollar appreciation."
Paul Ashworth, Chief North America Economist at Capital Economics, warned that these developments could trigger a damaging global trade war and push U.S. inflation higher, potentially sooner and more severely than initially expected.
Greg Daco, Chief Economist at EY, suggested that based on economic modeling, new tariffs could reduce U.S. economic growth by 1.5 percentage points this year and potentially push Canada and Mexico into recession.
Global Equity Markets React
Asian equity markets also faced pressure. Japan’s Nikkei 225 Index fell 2.7%, with automobile stocks leading the decline. Kentaro Hayashi, Senior Strategist at Daiwa Securities, noted, "Japanese equities are declining due to uncertainties in the global economic outlook, including concerns that Japanese exports could become targets of future U.S. tariff policies."
South Korea’s KOSPI Index dropped 2.5%, marking its largest decline since December 19 of last year.
U.S. stock futures also trended downward, with S&P 500 futures down 1.56%, Nasdaq futures falling 1.75%, and Dow Jones Industrial Average futures declining 1.39%.
Chris Weston, Head of Research at Pepperstone, described the tariff announcements as among the most aggressive policy moves possible. He noted that investors may turn more cautious toward equities, and tariffs could exacerbate currency and cross-asset volatility. However, he also suggested that the situation may not lead to full-scale risk-off behavior or a 10% correction in the S&P 500.
Frequently Asked Questions
What caused the sharp decline in cryptocurrency markets?
Increased global trade tensions and announcements of new tariffs led investors to move away from risk assets, including cryptocurrencies. Additionally, uncertainties regarding future U.S. monetary policy contributed to the sell-off.
Which cryptocurrencies were most affected?
Altcoins and meme coins like Dogecoin and Cardano saw declines exceeding 30%. Ethereum fell more than 26%, while Bitcoin dropped over 7% during trading sessions.
How did traditional markets respond?
Equity markets in Asia and U.S. futures declined, while the U.S. dollar strengthened significantly. Currencies like the Mexican Peso, Canadian Dollar, and Euro fell against the dollar.
What does liquidation mean in cryptocurrency trading?
Liquidation occurs when a trader’s position is forcibly closed due to insufficient margin. During sharp market moves, this can lead to cascading selling pressure.
Are trade policies the only factor affecting crypto markets?
While recent trade announcements played a major role, other factors such as inflation expectations, interest rate policies, and market sentiment also influence cryptocurrency prices.
Should investors expect continued volatility?
Yes, ongoing geopolitical and economic uncertainties may lead to further volatility in both cryptocurrency and traditional financial markets. Staying informed is crucial.