Bitcoin and Crypto Plunge as Trump’s New Tariffs Tighten Global Liquidity

The prices of Bitcoin and major cryptocurrencies dropped sharply on Monday (Feb 3, 2025) following President Donald Trump’s latest tariffs on China, Canada, and Mexico. The move triggered a broad market downturn, affecting the crypto sector as well.

Over the past 24 hours, Bitcoin has declined by more than 4%, putting significant pressure on the digital asset market.

The sudden drop surprised some investors, as higher inflation is often seen as a bullish factor for Bitcoin, given its reputation as a hedge against monetary devaluation.

However, according to analysts at Bernstein, the new tariffs have strengthened the US dollar and increased inflation expectations, making an imminent interest rate cut less likely. This has tightened global liquidity, putting downward pressure on risk assets, including cryptocurrencies.

Despite Bitcoin’s short-term correlation with risk assets, analysts maintain confidence in its long-term resilience. They argue that as government debt and deficits continue to rise, leading to monetary weakening, Bitcoin’s role as a store of value will become more evident.

Looking ahead, Bernstein expects Bitcoin to trade on its own fundamentals once the initial risk shock is absorbed.

The investment bank highlighted that Bitcoin has consistently held support around $90,000 following the recent sell-off, driven by strong institutional demand.

In January 2025, Bitcoin ETFs recorded $5.3 billion in net inflows, aligning with an annual projection of approximately $70 billion.

Meanwhile, MicroStrategy continues its aggressive Bitcoin acquisition strategy, recently purchasing $2.5 billion worth of Bitcoin and issuing $584 million in perpetual preferred shares, which will likely be used for further Bitcoin acquisitions.

With the US government’s efforts to build a national Bitcoin reserve and expected banking support following the repeal of SAB 121, Bernstein anticipates sustained institutional and corporate inflows into Bitcoin.

Furthermore, the Trump administration views cryptocurrencies as strategic assets. While the market remains skeptical about the impact of Elon Musk’s DOGE initiative, the government is actively working to curb inflation through various measures, including boosting energy production.

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