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Bitcoin and the broader cryptocurrency market reacted negatively to the Trump reciprocal tariffs announcement. Bitcoin suffered a price drop similar to the drops experienced by Ethereum and other altcoins.
According to a BBC report, the new Trump reciprocal tariffs announcement will target imports from over 185 countries worldwide and include higher taxes for specific countries like China and the European Union, among others, after identifying them as the worst offenders.
Liberation Day or Liquidation Day?
The media report stated that the Trump reciprocal tariffs announcement rates will be based on 50% of each country’s specific rates, including a 10% baseline tariff on imports and 25% on foreign-made automobiles. The tariffs targeting particular countries created market uncertainty that affected bullish and bearish positions.
The flagship cryptocurrency slid to under $83,500 immediately after the announcement. Ethereum followed suit and fell from $1,934 to under $1,800, while the total crypto market cap decreased by about $200 billion from its peak during after-hours trading.
The Trump reciprocal tariffs announcement that came on a day the US President dubbed “Liberation Day” imposed a 34% levy on Chinese imports and an existing 20% tax, bringing the total levy to 54%, the highest for any nation. According to many observers, the situation could deteriorate if China decided to retaliate. Robin Brooks, the managing director and chief economist at the International Institute of Finance, said on X:
“Everything now depends on China. If China devalues the Yuan in response to today’s large, additional US tariffs, that sets off a global risk-off that hits EMs first and then – if it persists – spills back to the US. China has so far kept a very low profile. That may now end.”
A Few Traders Made Profits
Immediately following the Trump reciprocal tariffs announcement, the crypto market experienced a short-lived positive sentiment as traders understood the full impact of the tariffs. Onchain data shows that large traders may have taken some profits during the initial price surge, but the majority of traders who hesitated to make a move, fearing volatility, ended up counting losses.
According to available liquidation data, the bitcoin-tracked futures encountered at least $170 million in combined long and short liquidations, with Ethereum futures losing over $120 million in liquidations. The smaller altcoins accounted for around $50 million in liquidation. According to data, both sides of the crypto market were affected unusually on a day when at least $257 million came from long positions and $232 million from short positions.
Possibility of a Positive Impact
Despite the current uncertainty surrounding the Trump reciprocal tariffs announcement, some analysts maintain that they could positively impact the crypto market in the long run. According to crypto investment specialist David Hernandez of 21Shares, the clarity provided by the tariff announcement could benefit markets going forward. Hernandez suggested:
“Markets thrive on certainty, and with speculation largely removed, institutional investors may see an opportunity over the coming days to take advantage of compressed valuations.”
Conclusion
The Trump reciprocal tariffs announcement has seen crypto enthusiasts question how their highly anticipated “Liberation Day” turned into a crypto “Liquidation Day.” Nonetheless, several analysts predict that the negative impact on the crypto market is only temporary and that Bitcoin could still revive and reach $200,000 by the end of 2025.
Frequently Asked Questions (FAQs)
What are tariffs?
Tariffs are customs duties levied on imported merchandise and products. They are designed to protect local manufacturers from competition with similar products by giving them a price advantage over imported goods.
What is the difference between taxes and tariffs?
Tariffs are prepaid at the port of entry, and consumers pay taxes at the time of purchase. The importer pays the tariffs, and businesses and individual taxpayers pay taxes.
Are tariffs good or bad?
Some economists see tariffs as necessary evils to protect local industries, while others believe they could potentially drive goods’ prices higher and lead to trade wars.
How do tariffs affect the crypto market?
In the beginning, tariffs slow economic growth, reducing demand for risk assets like bitcoin. Inflation also increases, leading to speculation on higher interest rates, causing a temporary price drop, as crypto often correlates with stock markets.
Appendix: Glossary of Key Terms:
Tariffs: A tax or duty to be paid on a particular class of imports or exports.
Liquidation: This is what happens when an exchange forcefully closes a trader’s leveraged position due to insufficient funds, such as when a trader cannot meet the margin requirements to keep a trade open.
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