Trump Tariffs Trigger Market Chaos: What’s Next for Bitcoin?

On the back of the newly imposed Trump tariffs, Bitcoin and Ethereum saw sharp declines Sunday night amid the global market selloff, with BTC briefly dipping to $91K and ETH crashing to $2,200—levels not seen for ETH since the Japanese yen carry unwind trade in early August. 

Figure 1: BTC & ETH Prices Minutes After Tariffs

Source: 21Shares, Coinglass

The broader market selloff triggered one of the largest liquidation events in crypto history. In the 24 hours that followed the selloff, total liquidations exceeded $2.2 billion, with some estimates ranging as high as $8-10 billion—surpassing even the fallout from FTX and Terra Luna. This extreme leverage-driven wipeout followed the imposition of new tariffs by the Trump administration on Mexico and Canada, alongside retaliatory countermeasures, which initially sparked sharp reactions across risk assets. Crypto, with its 24/7 trading cycle and high leverage, once again felt the brunt of the volatility, mirroring past episodes like the yen unwind and Iran-Israel tensions.

Figure 2: Bitcoin - U.S. Dollar 30-Day Rolling Correlation

Source: 21Shares, Coinglass

Historically, Bitcoin and the broader crypto market tend to experience an initial selloff during periods of macro uncertainty. Unlike equities or bonds, digital assets are traded around the clock, making them an immediate source of liquidity when unexpected geopolitical or economic events arise—especially on weekends when traditional markets are closed, exacerbating price swings. Despite the turbulence, extreme corrections often serve as necessary resets, flushing out excess leverage and setting the stage for a more sustainable uptrend.

The crypto market staged a rapid recovery on Monday after Mexico and Canada unexpectedly called off their counter-tariffs and complied with Trump’s request, postponing their retaliatory measures for 30 days to be reevaluated. This move eased market concerns, allowing Bitcoin to regain lost ground and even close higher than the previous day, signaling resilience after the shock.

The TradFi markets are recovering as well. Despite the broader market turmoil, signs of recovery are emerging. NASDAQ 100 futures (tracked by QQQ) have been rising since the market opened, despite China’s newly imposed 15% tariff on coal and liquefied natural gas products, as well as a 10% tariff on crude oil, agricultural machinery, and large-engine cars imported from the U.S. Meanwhile, S&P 500 (tracked by ETFs such as SPY and VOO) futures are also in the green.

However, Bitcoin remains below $100K, and other crypto sectors—such as AI sector leaders like Virtuals Protocol—are still trading under key levels. Given the scale of recent liquidations, caution is warranted, as similar events in the past—such as Sunday and Monday’s cascading liquidations—often lead to wick retests before a true reversal.

Looking ahead, these tariffs could contribute to a longer-term shift that ultimately benefits Bitcoin. Trump is using these tariffs as a bargaining tool to pressure America’s largest trade partners into aiding the U.S. in weakening the dollar—an approach that could have significant macroeconomic implications. A weaker dollar would improve U.S. export competitiveness and help sustain lower borrowing costs, but it would also increase pressure on the Fed to cut rates and ease monetary policy.

Historically, Bitcoin has thrived in such environments. As an asset inversely correlated to the dollar, as seen in figure 3, Bitcoin benefits when the dollar loses strength. Lower Treasury yields and rising global liquidity have consistently acted as catalysts for Bitcoin’s major rallies, reinforcing its role as a hedge against fiat debasement. If Trump's strategy succeeds in pushing the dollar lower, it could set the stage for Bitcoin to enter its next expansion phase.

Figure 3: Bitcoin - U.S. Dollar 30-Day Rolling Correlation

Source: 21Shares, Yahoo Finance

Furthermore, while this correction has been sharp, it aligns with Bitcoin’s historical market cycles. Crypto rarely sustains parabolic runs without corrections, and shakeouts like these often pave the way for the next leg higher. February, in particular, has been a strong month for Bitcoin, posting positive returns in 12 of the last 14 years, with an average gain of 15.66%. If historical patterns hold, this may be a temporary pullback before a renewed uptrend, especially as macroeconomic conditions continue to shift toward a more accommodative stance.

Figure 4: Bitcoin Average February Returns

Source: 21Shares

While the short-term reaction to macro events may seem negative, the underlying market dynamics—such as a weaker dollar and potential rate cuts—could create the conditions for Bitcoin to break out of its current range of $90K-$108K and push past its previous all-time highs, potentially driving it to the $150K-$200K range by the end of the year. With macro trends aligning in Bitcoin’s favor, this period of volatility may ultimately serve as the foundation for its next major expansion.