US President Trump signed an order on Feb 1 imposing new tariffs on major trading partners starting Feb 3: 25% on Mexico and Canada, and 10% on China, with Canadian energy imports facing a reduced 10% rate to protect US consumer energy costs. The measures, which would affect $1.6 trillion in annual trade, were implemented under the International Emergency Economic Powers Act. Trump announced the policy via social media, framing it as a response to national security threats from illegal immigration and drug trafficking.
Trump also claimed that these measures are due to large trade deficits, and threatened to impose tariffs on the EU and the UK.
However, according to the Observatory of Economic Complexity (OEC), in October 2024, United States exported mostly to Canada($29.8bn), Mexico ($29.1bn) and China ($13.5bn). This means that the 3 countries can retaliate most effectively, and smaller countries to which the US exports little, but which are major suppliers, would be better targets if trade deficits are the problem.
Markets were skeptical of Trump's tariff threats because the policy appears counterproductive on several fronts - it's unlikely to curb fentanyl trafficking, could increase Mexican migration by damaging Mexico's economy, is minimally effective in reducing the trade deficit and could maximize disruption, inflation and job losses in the US
Cryptocurrencies fell on Sunday in a risk-off move. The potential impact of Trump's tariffs extends to cryptocurrency markets in three key ways: they could reduce available capital for crypto investments by limiting disposable income due to increased costs and inflation, raise operational costs for mining operations that rely on Chinese hardware, and potentially centralize mining power by making it less profitable for smaller players. While crypto has historically been viewed as independent from traditional economic forces, these trade policies could significantly affect the industry's growth and decentralization.
Bitcoin fell below $93,000 and its market cap fell 9% since the tariffs announcement, while the 24h volume increased over 175%.
Ether suffered a significant price drop on Monday morning in Asian trading, plunging 27% - its steepest intraday percentage decline since May 2021, as traders responded to tariffs announcements by slashing positions in a range of tokens, though the cryptocurrency later recovered some of those losses, currently trading at around $2,580. Its market cap is down 17% over the past day while the 24h volume increased over 255%.
The announcements also led to a cascade of liquidations in the crypto markets with $2.25 billion liquidated in the past 24 hours, representing 739,645 traders liquidated. Over 83% of liquidated positions were long, with ETH positions taking the lead.
The global crypto market cap is now at $3.1tn, a 8.38% decrease over the last day. The total crypto market 24h volume is $322.05bn, which makes a 184.95% increase. The volume of all stable coins is now $296.88bn, which is 92.46% of the total crypto market 24h volume.
Since February 1st at 04:00 CET, the crypto market cap fell more than 12% from $3.53tn to $3.1tn (having gone as low as $2.99bn), while the volume increased 158%.
In addition to the broader macroeconomic pressures from trade policy, Bitcoin's network has already been experiencing significant operational challenges. Bitcoin network activity has fallen sharply, with daily transactions dropping to approximately 400,000, down from a peak of over 810,000 transactions in November 2023, marking the lowest level of network usage since March 2024.
The sharp decline in Bitcoin network activity is evident across multiple metrics: the mempool (pending transaction queue) has plummeted from 250,000 unconfirmed transactions in December 2024 to just 10,000, while blocks are being mined significantly under capacity. This unprecedented underutilization is exemplified by Block 881931, which contained only 31 transactions and was 25.35 kB in size - a stark contrast to typical blocks that process over 2,000 transactions, according to CryptoQuant's research. This lack of activity lead to sharp decline in transaction fees, adding financial strain on Bitcoin miners.
Despite Bitcoin's sharp drop, the Coin Days Destroyed (CDD) metric, which measures how long bitcoins have been sitting idle before being moved, shows minimal activity from long-term holders, suggesting they remain confident and view this as a temporary decline rather than a long-term bearish trend for the time being. Their inactivity during this significant price movement is notable, as historically, market sell-offs typically trigger spikes in CDD when long-term holders move their coins.
In an interview released on Feb 1, Senator Lummis proposed establishing a Strategic Bitcoin Reserve to address the $36 trillion US national debt, suggesting that Bitcoin's historical growth rate could help cut the debt in half over 20 years. She argues this approach would not only address intergenerational financial burdens but also reinforce the dollar's global dominance.
Cryptocurrency exchange Kraken will fully delist USDT on March 31 to comply with the European Union’s Markets in Crypto-Assets Regulation (MiCA), according to an official announcement by the exchange. They will also delist 4 other stablecoins including PayPal USD (PYUSD), and Tether's EURT.