How the new U.S. duties collapsed the crypto market: causes, consequences and forecasts

The crypto market capitalization declined amid the U.S. government's decision to impose duties of 25% on goods from Canada and Mexico and 10% on imports from China. U.S. President Donald Trump has also promised to take similar measures against the European Union. These measures are part of a long-term strategy to protect the U.S. market and increase economic pressure on key trading partners.

Cryptocurrency market reaction

The exchange rate of Bitcoin, the leading cryptocurrency, fell to $91,280 but then started to recover, breaking the $98,000 level. The value of Ethereum fell below a three-month low of $2400 and is now trading around $2700, according to Coinmarketcap.

Analysts attribute such dynamics to panic selling by investors fearing further escalation of trade conflicts. In addition, during periods of high volatility, algorithmic trading systems are activated, which amplify price fluctuations through mass order execution. Large cryptocurrency funds such as Grayscale and MicroStrategy continue to hold significant amounts of Bitcoin, which may indicate their long-term confidence in the market.

Large-scale liquidations and their implications

CoinGlass analysts noted that the most significant price decline triggered the largest liquidation in the crypto industry's history — about $2.27 billion. However, Bybit co-founder Ben Zhou claims that the liquidation amount is much higher and has reached at least $8 billion. He noted that over the day on the Bybit platform alone, the volume of liquidations reached about $2.1 billion, although analytical services recorded only $333 million due to limitations in the API work.

Liquidation of positions in future markets is an essential indicator of investor sentiment. During periods of high volatility, highly leveraged traders (margin trades) can lose their positions, leading to a chain reaction of liquidations. Such events have already been seen in May 2021 and November 2022, when the bitcoin price collapsed sharply due to macroeconomic and regulatory factors.

In May 2021, the Bitcoin collapse was triggered by several factors. First, the Chinese authorities announced a ban on cryptocurrency mining in several key regions, such as Sichuan and Inner Mongolia, which led to a massive shutdown of mining facilities and increased uncertainty in the market. Second, the administration of U.S. President Joe Biden proposed an increase in the taxation of cryptocurrency transactions, which increased pressure on investors. Together, these events caused the bitcoin price to plummet from over $60,000 to $30,000 in weeks.

In November 2022, the collapse was triggered by the collapse of one of the largest cryptocurrency exchanges, FTX. The company was experiencing serious financial problems due to improper asset management and the use of client funds to cover losses. This triggered a mass exodus of investors and a sharp drop in the price of Bitcoin, which was around $21,000 at the time but fell to $15,500 after the FTX crisis. This incident also increased regulatory pressure on cryptocurrency companies, only exacerbating the situation.

Impact of trade duties on the cryptocurrency market

Introducing new U.S. duties on imports from Canada, Mexico, and China has catalyzed volatility in the cryptocurrency market. These measures are aimed at protecting American businesses and reducing the trade deficit. However, they raise concerns about a possible global trade and economic growth slowdown, affecting investor sentiment towards risky assets, including cryptocurrencies.

Analysts at JPMorgan and Goldman Sachs note that increased protectionism could slow global economic growth, negatively impacting the cryptocurrency market. Investors seeking a "safe haven" in times of economic instability may partially reallocate assets into gold, government bonds, and other traditional assets, weakening capital inflows into the cryptocurrency sector.

According to the Tax Foundation think tank, the long-term effect of Trump's tariff proposals could reduce U.S. GDP by 1.7% annually. This is due to possible retaliation by trading partners and a reduction in the efficiency of global supply chains.

Reaction of the international community

Canada and Mexico have expressed their displeasure with the imposition of duties and are considering retaliatory measures. Canadian Prime Minister Justin Trudeau announced the imposition of 25% duties on U.S. goods with a total value of $155 billion. The initial $30 billion worth of duties will take effect on February 4, with the rest coming three weeks later.

Mexican President Claudia Sheinbaum Pardo announced the imposition of 25% duties on American goods in response to U.S. actions. She emphasized that such measures would negatively impact U.S. jobs and lead to higher prices for U.S. consumers.

However, after talks with U.S. President Donald Trump, an agreement was reached to suspend Canada's and Mexico's duties for 30 days.

China also announced its intention to take countermeasures to protect its interests: it announced the imposition of 15% duties on U.S. coal and liquefied natural gas, as well as 10% duties on oil, agricultural machinery, and vehicles, effective February 10.

Beijing imposed export controls on rare metals such as tungsten and bismuth, which are used in weapons and semiconductors.

While not immediately subject to duties, the European Union has expressed concern and readiness for a harsh response if restrictions are imposed on European goods. The EU is considering retaliatory duties on products from the U.S., especially from politically sensitive states, to put pressure on the U.S. administration.

Representatives of the World Trade Organization (WTO) stressed that strengthening trade barriers could lead to higher inflation, lower consumer demand, and weaken international financial flows. This, in turn, will put pressure on the cryptocurrency market, which is already affected by high regulatory uncertainty.

Institutional investments as a stabilization factor

The situation's further development will depend on the escalation of trade conflicts and the reaction of institutional investors to what is happening. If interest in spot Bitcoin-ETFs continues, it could become serious support for the leading cryptocurrency during the turbulence. Bitget Research analyst Ryan Lee notes that institutional investment could stabilize the market.

Spot Bitcoin-ETFs have attracted significant funds in recent months, and major players such as BlackRock and Fidelity continue to expand their presence in the crypto market. Their strategy may be to accumulate assets during downturns, ensuring the long-term sustainability of the cryptocurrency sector. Bloomberg data shows that institutional investors have invested over $15 billion in spot Bitcoin ETFs since the beginning of 2025, a record high.

Outlook and predictions

Experts are divided on the future of the cryptocurrency market. Some believe that the current correction is temporary and that prices may return to growth after the settlement of trade disputes. Others fear that in case of further escalation of economic conflicts, investors may prefer more stable assets.

According to Glassnode, the number of bitcoins held on exchanges continues to decline, which may indicate that investors are willing to hold assets for the long term. This is a positive signal, as a reduction in supply in the market could set the stage for the cryptocurrencies' subsequent appreciation. Despite the current volatility, the long-term outlook for cryptocurrencies remains positive, especially if the regulatory environment becomes more predictable.