Bitcoin and Ethereum Experience Sharp Decline Amidst Market Instability
Bitcoin plunged 8% in 24 hours, dropping to $78,250 on Friday morning, marking a new yearly low after its fall yesterday. Ethereum, the second-largest cryptocurrency, mirrored the trend with a 10% decrease, hovering around $2,100.
The Role of Economic Tensions and Protectionist Policies
The recent announcement by Donald Trump regarding the imposition of new import taxes has reignited uncertainty in financial markets. The US president confirmed the implementation of tariffs on Canadian and Mexican imports starting March 4th, as well as an additional 10% surcharge on Chinese imports on top of the existing 10%. This protectionist policy has fueled market instability, triggering a decline in stocks and cryptocurrencies.
Institutional Withdrawal and Pressure on Bitcoin
The concern among institutional investors has further aggravated the Bitcoin slump. The closure of basis trade positions by major market players has accelerated the downward trajectory that began last week. Moreover, Bitcoin exchange-traded funds (ETFs) in the United States have recorded record outflows, signaling a significant repositioning by institutional investors.
This pressure has subsequently impacted cryptocurrencies due to Bitcoin’s strong correlation with the S&P 500 index. The liquidity drain caused by speculative waves in memecoins since the beginning of the year has also contributed to the weakness in the markets.
Volatility Plummets, Speculators Capitulate
Bullish traders are capitulating in the face of the bearish trend, favoring put options over call options. According to CME Group data, the value of Bitcoin futures options dropped 5% in a day, falling to $79,190. Meanwhile, the volume of Bitcoin options plummeted 50% compared to the previous day.
MicroStrategy Under Pressure: An Aggravating Factor
Concerns surrounding Michael Saylor’s strategy add additional pressure to the market. MicroStrategy, which has accumulated tens of thousands of bitcoins through the issuance of convertible notes, raises doubts about the sustainability of its purchases in the event of a market downturn. These factors have plunged Bitcoin into a phase of extreme short-term pessimism, despite MicroStrategy’s relatively low average purchase price above $60,000.
MicroStrategy’s stock (MSTR) dropped 8.82% on Thursday, closing at $240, before experiencing a slight rebound overnight.
An Extreme Fear Market in Response to Trump’s Policies
The Crypto Fear & Greed Index by Alternative.me displays a score of 10, indicating extreme fear among investors, a level unseen since the collapse of Terra-Luna and Three Arrows Capital in 2022.
Ironically, this wave of pessimism comes at a time when the Trump administration is displaying a pro-crypto stance, seeking to clarify the regulatory framework of the sector. Major reforms by the Securities and Exchange Commission (SEC) are currently underway to provide more certainty to market participants.
However, these dynamics fail to reassure investors in the short term due to Trump’s political decisions. Stabilizing the US economy is a priority before hoping for a market recovery. For now, macroeconomic uncertainties prevail, fueling widespread caution regarding risky assets.
