Bitcoin slumped sharply on Wednesday as escalating trade conflicts between the US and China rocked global financial markets.
The leading cryptocurrency lost nearly 5% in value in the 24 hours after the announcement, reflecting a wave of widespread selling across multiple asset classes. The drop was triggered by China's declaration to impose high retaliatory tariffs, which increased tariffs on US imports from 34% to 84%.
The recent US imposition of a 104% tariff on Chinese goods has aggravated an already strained economic relationship between the world's two largest economies. Investors are selling riskier assets and shifting to safer investments as the ongoing trade war threatens to slow the global economic recovery.
Asian markets immediately felt the effects of the tariff hike. The Nikkei 225 index in Japan fell sharply by almost 4% during early trading. Markets in South Korea, Australia and New Zealand also posted significant declines, reflecting widespread fears about potential economic fallout.
Australian stocks opened down 2%, erasing earlier gains, as prospects for a swift resolution of US-China trade tensions waned.
The US was also affected by strong knock-on effects. After touching a temporary high of 4.1%, the S&P 500 index reversed with a 1.6% drop, settling almost 19% below its February high.
Lois Beckett
The Dow Jones Industrial Average lost 0.8 per cent, while the Nasdaq Composite Index dropped a significant 2.1 per cent. Bitcoin's recent price movements show a strong correlation with the Nasdaq, contributing to its sharp decline.
The sudden drop in the crypto market triggered a large wave of liquidations, with daily losses exceeding $400 million.
"In the past 24 hours, 135,731 traders have been liquidated, totalling $437.32 million," Coinglass said.
Most of the losses during this sell-off hit leveraged long positions. Market sentiment towards Bitcoin has undergone a major shift, with the long-short ratio reversing after weeks of stability. Open interest shows that short positions account for 55 per cent of the total, demonstrating the growing bearish sentiment in the market.
Investors across several sectors are rapidly reducing risk exposure and bracing for more volatility as the trade conflict escalates. The additional duties of 104% imposed by President Trump on Chinese imports, combined with the diplomatic standoff, have greatly increased uncertainty in the markets, leading traders to focus on liquidity and implement defensive strategies.
The Chinese announcement of 84% duties on all US imports, effective 10 April, could further exacerbate market instability.
Despite the prevailing bearish sentiment, some analysts and investors see Bitcoin's current price decline as a buying opportunity, believing that the cryptocurrency's long-term fundamentals remain solid.
Bitcoin's deteriorating value, coupled with the general market decline, reflects growing concern about escalating trade tensions.
"Bitcoin has survived before, and now you're panicking about duties? Another opportunity you will regret missing,"
said Quinten Francois on X (formerly Twitter).
Bitcoin already survived:
- Quinten | 048.eth (@QuintenFrancois) April 6, 2025
Mt. Gox -99.9%
Covid crash -50%
China mining ban -50%
Crypto winter -83%
And now you're panicking over tariffs?
Just another opportunity you'll wish you took
X
The crypto fear and greed index signals an increase in apprehension among investors, moving towards the "extreme fear" zone. The future performance of Bitcoin and other risky assets will likely remain tied to geopolitical developments until the trade war slows down.
