With a staggering $1.4 billion lost to crypto liquidations within a single day, are we just beginning this downturn — or nearing a recovery?
Tariffs shake global markets
As of April 7, the global market landscape has significantly deteriorated, largely due to a recent policy modification. On April 2, President Donald Trump proclaimed a new series of tariffs, dubbed “Liberation Day” tariffs, which swiftly altered the atmosphere in both stock and cryptocurrency markets.
These tariffs are extensive, imposing a 25% duty on imports from Canada and Mexico and an additional 34% tariff on goods from China. In some instances, items from other nations are now subject to combined tariffs that reach as high as 54%.
For Chinese imports, the cumulative effect of newly implemented and pre-existing tariffs means many products are now entering the U.S. with effective duty rates above 54%.
The repercussions for the U.S. stock market were immediate. By April 4, the market had lost almost $5.5 trillion in value within just two days. On April 3, the S&P 500 alone saw a loss of $2.4 trillion, followed by further substantial declines the following day.
In percentage terms, the Dow Jones plunged over 4,000 points, or 9.48%, while the S&P 500 dropped 10%, and the Nasdaq fell by 11%, all within 48 hours.
This action sparked a rapid response. On April 4, China announced its own 34% retaliatory tariff, escalating tensions and further dampening market confidence.
The subsequent volatility has impacted markets globally. As of April 7, cumulative losses across major U.S. indices are predicted to be between $6–7 trillion, with the exact numbers still being finalized.
The CBOE Volatility Index (VIX), known as Wall Street’s “fear gauge,” spiked to a multi-year peak of 60 by April 7. This level hasn’t been seen since the peak of the COVID-19 pandemic and previously during the 2008 financial crisis, when the VIX approached 80.
Markets outside the U.S. have also suffered significant declines. The Shanghai Composite Index in China fell over 7%, and Japan’s Nikkei lost nearly 8%. Bond markets are also feeling the pressure, with Treasury yields experiencing bear-flattening, rising 2-year yields, and declining 10-year yields.
Volatility has not been confined to equities. The cryptocurrency market has been hit hard as well, with CoinGlass reporting $1.4 billion in liquidations within the last 24 hours as of April 7 — one of the highest daily totals in recent months.
Bitcoin (BTC) saw a nearly 8% drop, falling to $76,500 and briefly hitting lows around $74,400. Ethereum (ETH) plunged 17% down to approximately $1,500, with a temporary dip to $1,415. Other significant altcoins followed suit, with Ripple (XRP) declining 16% to around $1.76, and Solana (SOL) dropping to about $101.
The CEO of BlackRock, in a letter to shareholders, depicted the current economic landscape as one of “widespread economic anxiety,” highlighting that such unpredictable tariff actions have rendered financial planning “impossible” for businesses attempting to navigate global supply chains.
So, what is behind this wave of sell-offs? How do experts view the potential road ahead? And how much worse could conditions realistically become? Let’s delve deeper.
Why is crypto struggling?
As tariffs rise, the cost of imported goods tends to increase, which typically fuels inflation—especially when these tariffs are widespread and affect major trading partners.
Trump’s announcement, targeting various regions, has reignited concerns of a global trade conflict. For investors, this shift in the economic environment is substantial.
In times of economic instability, riskier assets are often the first to be sold off. This includes stocks as well as cryptocurrencies. Although cryptocurrencies are often perceived as separate from traditional markets, history indicates that during periods of severe stress, digital assets often behave more like technology stocks than safe investment havens.
This trend was evident in early February, when a previous round of tariffs resulted in $2.2 billion in crypto liquidations and pushed Bitcoin down to $92,000. We are witnessing a similar pattern again, but this time it is exacerbated.
The interest rate forecast adds another layer of complexity. In a slowing economy, one would typically expect the Federal Reserve to lower rates. However, tariffs complicate this strategy.
As tariffs are inflationary, they restrict the Fed’s options. If inflation rises, the central bank may find itself delaying anticipated rate cuts or even needing to increase rates once more.
Higher rate environments decrease liquidity, which tends to most severely impact speculative markets. Crypto, known for its sensitivity to liquidity changes, often reacts strongly to these kinds of adjustments.
This is where institutional sentiment plays a crucial role. According to The Kobeissi Letter, a well-regarded macroeconomic newsletter, the market has shifted into a phase dominated by fear.
In a recent statement on social media, Kobeissi pointed out that the market had “lost its orderly nature,” with assets being sold indiscriminately, including traditional safe havens like gold, which recently fell below $3,000 an ounce.
This type of widespread selling often indicates a capitulation phase, where investors shift from strategic decision-making to focusing on capital preservation.
Supporting this sentiment shift, data from March indicates that institutional investments have been exiting U.S. equities at an accelerated pace, tightening liquidity across various asset classes.
As capital moves away from equities, it is not being redirected towards crypto. Instead, it is flowing into short-term cash instruments and defensive investments.
How bad could it get?
The current selloff may not represent the worst damage. If the trend continues and retaliatory actions escalate as anticipated, the global economy could be heading towards one of its most challenging periods in over ten years.
To start, trade might be severely affected. According to Oxford Economics, if all significant U.S. trading partners respond with reciprocal tariffs, global trade volumes could contract to levels not seen since the 2008 financial crisis, excluding the COVID-19 context.
This scenario is quickly becoming a reality — China has already enacted a 34% retaliatory tariff, and further responses from the EU, Japan, and other major economies are highly expected.
Estimates from the Tax Foundation suggest that the full implementation of Trump’s tariff strategy could lead to a $1.8 trillion tax burden on American consumers. This might lower U.S. imports by $900 billion in 2025, further tightening supply chains and increasing costs across a variety of sectors.
Tariff rates are escalating to historic levels. If retaliation continues, average U.S. tariff rates could exceed 33%, approaching the Smoot-Hawley levels of the 1930s, which is regarded as one of the contributors to worsening the Great Depression. For reference, the U.S. has not experienced average tariff levels above 20% since 1946.
Significant sectors are already feeling the pinch. As of midday on April 4, Apple and Nike combined have lost $470 billion in market value, as reported by The Guardian.
Boeing shares fell 10% as disruptions ripple through aerospace supply chains, particularly affecting China and Vietnam, which are now facing tariffs of 52% and 46% respectively.
The tech, retail, and manufacturing industries that depend on global sourcing are experiencing the brunt of these policy changes.
The overall macroeconomic repercussions are beginning to unfold. JPMorgan has cautioned, in comments to CNN, about a potential recession in the U.S. and globally in 2025 if these trade measures are sustained.
Investor Bill Ackman articulated the market’s concerns in a recent statement, warning that business confidence is dissipating rapidly. While he supports addressing global trade imbalances, Ackman warns that a comprehensive, multi-pronged tariff approach could damage America’s status as a reliable trading partner.
If Trump’s actions continue relentlessly, Ackman posits that the result could be a halt in corporate investments, a downturn in consumer spending, and widespread layoffs, particularly in small and mid-sized businesses that are less equipped to weather abrupt cost increases.
Should a global slowdown materialize — driven by shrinking trade, rising inflation, and tighter monetary policy — capital will likely keep departing risk assets, with crypto likely at the forefront.
What’s on the horizon for Bitcoin and crypto?
There is a consensus that we are currently navigating a challenging macroeconomic environment. While analysts suggest Bitcoin may endure more immediate struggles, the long-term case for its utility in a fragmented global economy appears increasingly compelling.
Jamie Coutts, a charted market technician and crypto strategist previously affiliated with Bloomberg, points out that Bitcoin is currently testing vital resistance levels, specifically “the top of last year’s 7-month trading range,” as defined by metrics such as exchange volumes and UTXO Realized Price Distribution (URPD).
According to Coutts, what sets this moment apart is that Bitcoin has emerged as one of the few risk assets that enables macro investors to articulate their worries about the escalating trade conflict.
“Once the situation stabilizes, Bitcoin will stand out as people recognize it’s not merely a store of value… It’s designed from the ground up for trade settlement,” he expressed.
Coutts also referenced a recent report from BlackRock, which emphasizes Bitcoin’s role as a “scarce, global, decentralized, non-sovereign asset.”
While BlackRock avoids labeling it as a settlement currency, it does acknowledge Bitcoin’s clear value as a hedge in portfolios faced with geopolitical and macroeconomic uncertainties.
On the other hand, Michaël van de Poppe, a prominent crypto trader and analyst, warns that panic-driven price volatility is not yet subsiding.
With Bitcoin down nearly 30% from its recent peaks, he anticipates further tests of support levels, possibly dipping as low as $70,000, especially if there is no delay in tariffs or if the Fed refrains from holding an emergency meeting.
Nonetheless, van de Poppe also views these levels as promising long-term buying opportunities: “In 12–24 months, you’ll likely be glad you invested at these price points,” he noted.
Others interpret the current decline in prices as a precursor to a broader narrative shift. Geoffrey Kendrick, the global head of digital assets research at Standard Chartered, suggests that Bitcoin could transition into a hedge against risks associated with tariffs.
In a note shared with The Block, he linked the growing U.S. isolationist tendencies to heightened concerns about fiat currency exposure: “U.S. isolationism ramps up the risks inherent in holding fiat, which will ultimately benefit Bitcoin,” Kendrick stated.
He pinpointed $76,500 as a vital support threshold, representing the high reached the day after the U.S. election, and highlighted Bitcoin’s relative strength compared to major technology companies, aside from Microsoft and Google.
Overall, while short-term volatility will likely continue, especially amid tariff escalations impacting rate expectations and capital flows, the long-term prospects for Bitcoin seem to be strengthening.
However, caution is essential. If tariff measures expand further or inflation intensifies, Bitcoin may experience additional pressure alongside the broader markets. The market remains highly unpredictable, so it’s important to trade judiciously and only invest what you can afford to lose.