The crypto market continues its strong downward trend as the fear and greed index slumped following Donald Trump’s “Liberation Day” speech.
Bitcoin (BTC) crashed by 3.5% in the last 24 hours as it approached the crucial support at $80,000. Similarly, Ethereum (ETH) price dropped to $1,765, while Ripple (XRP) fell below the key support at $2.
The total market capitalization of all cryptocurrencies declined by 4% to $2.6 trillion, meaning investors have lost over $1 trillion in recent months. This stark loss reflects the broader sentiment in the crypto market, which has been struggling to maintain its ground against a backdrop of economic uncertainty and policy shifts.
As we explore the implications of this market downturn, it’s essential to understand the context that precipitated these falls. The timing of this crypto decline coincided with a significant downturn in the stock market. Within just 30 minutes of the trading day commencing, the Nasdaq index plummeted nearly 4.7%, the S&P 500 index fell by 3.78%, and the Dow Jones Industrial dropped 3.4%. Such negativity in the equities market invariably spills over into the cryptocurrency space, indicating a correlated relationship between these asset classes.
The catalyst for this widespread market decline was Donald Trump’s recent speech regarding what he termed “Liberation Day.” During this address, he announced new tariffs that were more severe than many analysts had anticipated. Here, he imposed a minimum tariff of 10%, with particular attention given to China and the European Union, facing tariffs of 34% and 24%, respectively. In addition, Trump announced a 25% tariff on steel, aluminum, and critical parts, raising fears about potential supply chain disruptions and inflationary pressures on the U.S. economy.
The immediate concern following these tariff announcements is the increased risk that such measures could trigger a recession, both domestically and globally. This anxiety is illustrated by the rising Polymarket odds of a recession in the U.S. by 2025, which have surged to record highs. In this context, a TS Lombard analyst suggested that the imposition of these tariffs is not merely a mild stagflationary issue but a significant threat, warning, “if these tariffs stay in place, this is a recession-producing turn.”
BTC, ETH, and XRP Prices Depend on Federal Reserve Responses
Historically, the cryptocurrency market has demonstrated a tendency to react sharply to significant economic events, much like traditional equity markets. For instance, during the Global Financial Crisis of 2008, risky assets took a significant hit. Similarly, when the World Health Organization declared COVID-19 a global pandemic in March 2020, both equities and cryptocurrencies suffered severe drops. However, in each case, market recoveries were catalyzed through Federal Reserve intervention, highlighting the crucial role that monetary policy can play in stabilizing market conditions.
As analysts reflect on the current climate, they note that the response of the Federal Reserve will be critical. Should economic data reflect a clear divergence towards recession due to tariff impacts, the Fed may find itself compelled to accelerate interest rate cuts sooner than previously anticipated. Additionally, Trump may implement measures to cushion the blow to specific sectors, such as agriculture, which would involve increased bailouts leading to higher liquidity in the market—potentially boosting asset prices in the medium term.
For investors, this analysis suggests that while BTC, ETH, XRP, and other cryptocurrencies may continue to trend downward in the immediate future, the possibility of a rebound remains contingent on Federal Reserve actions. Through historical precedent, we see that economic downturns can present unique opportunities for recovery, but this always comes with the caveat of broader economic indicators and policy execution.
