The media The Kobeissi Letter pointed out that since the escalation of trade war concerns at the end of January this year, the market capitalization of the global cryptocurrency market has plummeted from $3.7 trillion to $2.8 trillion in just five weeks, wiping out over $800 billion in value. For a long time, Bitcoin has been seen as a decentralized hedge asset against economic uncertainty, but this role seems to be still shaking.

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Trade War Severely Shakes Market Confidence

Since Trump took office on January 20, 2025 and announced the resumption of trade war policies, the crypto market has experienced violent fluctuations. Data shows that BTC has fallen $25,000 from its all-time high and fell below $84,000 on February 27, the largest drop since Trump took office last year.

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At the same time, after Trump imposed a 25% tariff on the EU, the stock market, led by tech stocks, has been disastrous, with declines ranging from 1% to 8%.

This chain reaction shows that the trade war not only affects the traditional market, but also affects the cryptocurrency field, reversing the post-election BTC uptrend.

BTC Highly Correlated with Risk Assets

Over the past decade, BTC has often been seen as a hedge asset similar to gold. However, a closer analysis reveals that since 2023, the trend of BTC and NASDAQ 100 has been almost completely synchronized, and the correlation coefficient with the S&P 500 reached 0.88 in 2024.

Currently, the 30-day rolling correlation between the two data is still close to 0.4, indicating that BTC has shifted from a hedge asset to being highly correlated with risk assets. In other words, when the trade war triggers market uncertainty, BTC can no longer stand alone, but will instead fall along with the traditional stock market, or even more severely.

Liquidity Tightening Exacerbates Downtrend

At the same time, the reduction in market liquidity is another key factor in the decline of cryptocurrencies. Reviewing the data since 2020, when liquidity tightens, the cryptocurrency market often performs weakly. For example, in the rapid collapse on February 1, 2025, the market lost $760 billion in market value within 60 hours, highlighting the impact of liquidity on prices.

Furthermore, during the trade war, capital has shifted to USD hedging, causing the USD-crypto exchange rate to reach its highest level since 2003, further compressing the liquidity pool of the crypto market.

Retail-Driven Market Panic

The behavior of retail investors also played an important role in this downturn. In the two days after the election, $2 billion flowed into BTC spot ETFs, and the launch of the TRUMP meme coin attracted millions of retail investors.

However, the stability concerns triggered by the trade war also led to a collective withdrawal of retail investors. On February 25, the BTC spot ETF saw a record single-day outflow of $1 billion, with a total outflow of $2.1 billion over six consecutive days. This "herd effect" has led to large liquidity gaps and caused BTC to plummet more than $5,000 in just a few minutes.

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BTC Trend Has Decoupled from Gold

In contrast to the decline in BTC, gold has stood out during the trade war. The Kobeissi Letter pointed out that gold ETFs bought 52 tons of gold last week, the most since July 2020, and gold prices have risen 50% in the past year, marking the best annual performance in a decade.

From 2015 to 2023, Bit and gold were seen as hard assets, but now their trends are opposite, indicating that the market has regarded gold as the main global hedge asset, while the hedge position of Bit is obviously challenged.

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Enlarged market scale increases volatility

In addition, the current scale of the crypto market is no longer comparable to the time of the trade war. The Kobeissi Letter mentioned that during the last trade war, the total value of the crypto market was only about $300 million, and now the scale has expanded tenfold, and the degree of popularization has also increased significantly, indicating that the volatility of the market will expand accordingly.

In addition, the polarized operations of institutional investors have exacerbated instability. For example, the Short positions of ETH have surged by 500% since November 2024, with a total of over $2 billion, which will put huge pressure on the future upward trend.

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The reality of the trade war: the crypto market is still a risk market

The return of the trade war reveals a new reality of the cryptocurrency market: "Bit is no longer a simple hedge asset, but is deeply entangled with the risk market."

Liquidity tightening, retail panic, and the expansion of market scale and volatility have jointly led to the evaporation of $800 billion in market value. Even though Trump was the most supportive president of cryptocurrencies in history, his trade policy still became a source of pressure for the capital market, and also cast a veil of uncertainty over the market.