The cryptocurrency market witnessed an unprecedented event as over $2 billion in assets were liquidated in what has been recorded as the largest single-day liquidation in crypto history. This event, which saw a staggering $800 billion wiped off the market cap in mere hours, was heavily influenced by a series of external economic factors, notably the recent tariffs imposed by US President Donald Trump.
The liquidation began in the early hours of February 3, 2025, with total liquidations reaching $2 billion, primarily affecting long positions valued at approximately $1.87 billion. This scale of liquidation not only surpassed previous notable crashes like the FTX collapse and the March 2020 market downturn but also highlighted the crypto market’s vulnerability to external economic policies.
Impact of Trump Tariffs
On February 1, 2025, President Trump signed an executive order imposing significant tariffs: a 25% tariff on imports from Canada and Mexico, and a 10% tariff on Chinese goods, effective from February 4. These tariffs were not directly aimed at the cryptocurrency sector but had indirect yet profound effects:
The announcement of these tariffs instilled a risk-off sentiment across global markets. Investors, wary of high volatility, costs, and potential economic slowdowns, are moved to reduce exposure to high-risk assets like cryptocurrencies.
The crypto mining sector, which relies heavily on imported hardware from countries like China, faced immediate cost pressures. Companies like Bitmain and Canaan, major manufacturers of mining equipment, saw their products become more expensive for U.S. buyers, potentially reducing mining profitability and leading to sell-offs in related cryptocurrencies.
The response from Canada and Mexico, with retaliatory tariffs, further escalated tensions, contributing to a broader economic uncertainty. This uncertainty spooked investors, leading to a flight to safety and away from volatile assets like crypto.
The crypto market’s structure, characterized by high leverage and relatively low liquidity compared to traditional markets, meant that the withdrawal of funds due to tariff fears could significantly impact prices. When large volumes of assets are sold to cover losses or reduce exposure, it can trigger a cascade of liquidations.
Crypto Market Analysis
The cryptocurrency market has undergone a significant downturn, shedding over $700 billion in market capitalization within just four days, reducing the total from $3.57 trillion on January 31 to $2.81 trillion. This 21% decrease underscores the severity of the market’s reaction to various external factors.
Bitcoin, one of the market leaders, fell below the psychological threshold of $95,000, contributing to the overall bearish sentiment. Ethereum, the second-largest cryptocurrency by market cap, experienced a sharp decline, dropping from around $3,550 to below $2,500, a loss of approximately 29%. This movement was not isolated but part of a broader sell-off where Ethereum saw significant liquidations, with over $600 million in positions liquidated in the last 24 hours of the period.
Solana and XRP were also hit hard by this market correction. Solana’s price decreased from about $200 to $191, marking a 6% drop, with further declines in the last trading session of nearly 9.4%. XRP saw its value fall by over 10%, moving from above $3 to below $2.90, which was particularly impactful as it had briefly surpassed Binance Coin in market cap earlier in the week.
