Key Points
- The crypto market experiences a $500 billion loss, influenced by key macroeconomic developments.
- Investors are losing confidence in cryptocurrencies as safe haven assets, turning to gold instead.
The crypto market is bracing for increased volatility as major macroeconomic developments trigger a risk-off sentiment among investors.
Sharp Market Decline
The Kobeissi Letter reported a $500 billion loss in the crypto market within 24 hours. This loss is approximately $100 billion less than the market value before the announcement of a strategic crypto reserve by U.S. President Donald Trump. This reserve would comprise a variety of crypto assets, with Bitcoin and Ethereum as the main holdings.
Following Trump’s announcement, the global crypto market jumped from $2.7 trillion to $3.1 trillion in just 10 hours. However, these gains disappeared within a day, pulling the market down to $2.6 trillion. Analysts attribute this sharp reversal to a “colossal retail trap” that severely affected bullish traders.
Bitcoin’s value decreased by 3%, losing nearly $250 billion in market cap over the past 12 hours. Ethereum also experienced a decline, sliding to $2,002, an 8% drop from its previous rebound. The broader market was also affected, with the S&P 500 index falling nearly 5%, and tech stocks like Nvidia also experiencing losses.
Shift in Safe Haven Perception
On March 3, Trump announced a 25% tariff on Canada and Mexico, effective from March 4. This move dashed hopes for a last-minute deal to alleviate trade tensions. Both Canada and Mexico have pledged to retaliate.
The situation worsened when China also retaliated by increasing tariffs on key U.S. imports by 10-15%. This occurred on the same day a 20% tariff on Chinese imports was set to take effect.
Analysts suggest that these global developments have led to a risk-off trade, causing all risky assets to fall. Investors are losing faith in Bitcoin as a safe haven asset, and are turning to Gold instead. Since the start of the year, Gold’s price has risen by 10%, while Bitcoin’s price has fallen by nearly 10%.
Expectations of Increased Volatility
Analysts warn of potential “wilder swings” in the crypto market in the upcoming weeks. Goldman Sachs’ volatility panic index has risen from 1.4 in December to 9.1 last Friday, nearing 10, a level last seen during previous major market shocks. This increase indicates that extreme volatility may become the new norm.
A Bank of America survey suggests that investors do not expect Bitcoin to fare well in the coming months. Only 3% of respondents believe Bitcoin would perform best in a full-scale trade war, while 58% view Gold as the top safe-haven asset for 2025.
However, Matt Mena, Crypto Research Strategist at 21Shares, believes that the market reaction to the tariffs may have been an overreaction. He suggests that many investors had foreseen these moves and anticipate some level of stabilization when trading resumes. Despite short-term volatility, Mena maintains a positive long-term outlook for the crypto sector, citing “broader structural trends favoring institutional adoption”.