On Friday, mainstream crypto assets experienced a significant drop, with the value of Bitcoin plummeting by 6.69 percent and the popular digital currency Dogecoin also seeing a substantial decline of 9.74 percent. The reasons for this can be attributed to several factors.
First, US President Donald Trump’s intensified tariff threats have led to a substantial retreat in global risk assets, including cryptocurrencies. On Thursday, Trump stated on his social media platform that the proposed tariffs on Mexico and Canada would still take effect on March 4, as would additional 10 percent tariffs on China. Coupled with previous measures, nearly all of US’ trading partners, except for the United Kingdom, will face additional tariffs.
The escalating tariff threats from the Trump administration have dampened global appetite for risks. Both the US and Asian stock markets saw significant pullbacks, and cryptocurrencies, as risk assets, were not immune to these effects.
Second, the fluctuations in crypto assets are closely linked to global liquidity, and the expectation of a Federal Reserve rate cut in 2025 has narrowed under the pressure of rising inflation. On Jan 30, the Federal Reserve’s interest rate meeting paused rate cuts, maintaining the federal funds target rate at 4.25 to 4.5 percent. On Feb 27, the hawkish president of the Federal Reserve Bank of Cleveland suggested that the current interest rate level had not yet reached a significantly restrictive point and should remain stable for some time.
Furthermore, although many members of Trump’s Cabinet supported the idea of cryptocurrencies becoming a reserve currency, Federal Reserve Chair Jerome Powell has dismissed the possibility of this during his tenure. Additionally, numerous hacking incidents involving crypto assets indicate that the industry still has vulnerabilities in technology and risk management.
Moreover, leading US tech stocks have been reevaluated in the face of low-cost and more efficient artificial intelligence. Crypto assets, which are closely related to US tech companies, have indirectly accelerated their revaluation due to the rise of Chinese AI companies such as Deep-Seek.
Overall, during the second Trump presidency, despite the majority of Cabinet members supporting crypto assets, his policies are characterized by significant randomness and uncertainty. During this period, global macroeconomic conditions, liquidity environments, and foreign policy will have significant impacts or even disruptive changes, affecting the capital in the crypto market, the behavior of crypto asset investors, and the sentiment of cryptocurrency investors, leading to increased volatility in crypto assets.
