It's a blood bath day for the crypto market today, with almost all cryptocurrencies facing significant lows. With the largest altcoin, Ethereum, falling over 20% and Bitcoin sliding below $95k, the entire crypto market lost over $2 billion in a single day!
Some are calling this drop even worse than the FTX collapse of 2022, and that got everyone asking, “Why is Crypto crashing today?”
So, let's dig in and find the answer!
Why has Crypto Crashed Today?
The courtesy behind painting the market red goes to Donald Trump, who recently became US president for the second time. While Trump has always touted himself as pro-crypto, his recent actions have become the key reasons for today's crypto crash.
Here’s what happened-
Since his presidential campaign, Donald Trump has repeatedly focused on his big plans of introducing higher tariff rates for different countries. Even in his previous presidency, which lasted from 2017 to 2021, his tariff decisions remained controversial.
In the current tenure, Trump’s Tariff plans include the following implementations:
- 25% tariff on Mexico & Canada (his largest trading partners)
- 10% additional Tariff on China (its top goods supplier)
- 20% on other countries like the European Union
- And a possible 100% on all BRICS countries (if they try to replace the US dollar)
Before a few days, it was all just potential plans. However, it all turned into reality recently when Trump imposed a 25% tariff on Canadian and Mexican imports, alongside a 10% additional tariff on Chinese goods, effective from 4th February 2025.
Apart from these implementations, Trump has also recently become even more vocal about imposing tariffs on the European Union next. In a recent interview with reporters, he replied that he would “absolutely” impose tariffs on the European Union, too.
But why are these tariffs terrifying the crypto market?
This is because when a country starts imposing tariffs on other countries, those countries also retaliate by imposing similar tariffs on each other. We have already seen it in action when Trump rolled out his tariffs on Canada, and the Canadian President quickly retaliated with the same on American goods. This happened despite America warning Canada that if it retaliates, the US could raise its tariffs even higher.
Even China has hinted towards giving “corresponding countermeasures” if Trump doesn’t take back his tariff decision.
With all that happening, the chances of a Trade war seem to be escalating. A trade war occurs when multiple trading partner countries raise or create tariffs against each other. Such economic events hugely affect consumers, who are left to pay higher prices for imported goods. They can also affect crucial economic indicators like inflation levels, FED rates, political tensions, and international trade.
Out of fear of potential crashes, investors tend to shift away from high-risk assets. With the crypto market being notorious for its high volatility and unregulated environment, investors quickly pull their funds and invest them in safer investments. Somewhat similar sentiments have caused the crypto crash today by eliminating $2 billion in a single day. The biggest losers out of this crypto crash are-
- Optimism ( OP) - 33%
- Gala ( GALA)- 32%
- Filecoin ( FIL )-31.5%
- Floki ( FLOKI) -31.2%
- Kaspa ( KAS ) - 31.39%
What Next After Today’s Crypto Crash?
This market crash has delayed the altcoin season for at least a few weeks. With many top-performer cryptocurrencies nosediving after Trump’s tariff announcements and side effects, the crypto market will take some time to bounce back.
Most investors will be watching Trump’s upcoming actions and the retaliations of other countries. If Trump imposes higher tariffs on more countries, the risk of a full-blown trade war increases, which could leave the market bleeding red.
However, given Trump’s pro-crypto stance, the market could also stabilize quicker if his administration implements any positive crypto developments.
Since the beginning of his presidency, Trump has already signed an executive order aimed at creating a national crypto stockpile. His earlier plans to make America the crypto capital of the world also offer a silver lining that can soon turn the market around.
The stances of other countries like India on Crypto can also help the market regain its strength. In a recent interview, India’s economic affairs secretary, Ajay Seth, said that India is reconsidering its crypto policies to avoid falling behind other countries.
With all the uncertainties, it might be wise for investors to adopt a "wait and see" approach until political conditions improve. This could also be a good time to focus on coins you have high conviction in and average out your positions.
