Crypto liquidation and tariff trouble? Some analysts say it's not so bad

One of the benefits of cryptocurrencies is that they are theoretically less vulnerable to geopolitical forces, but US President Donald Trump's recent tariffs have challenged that notion.

US stocks were mixed during a volatile trading session on Monday, as Mr Trump threatened to impose a new 50 per cent tariff on China. Earlier on Monday, Bitcoin, the world's largest cryptocurrency, was trading down 5 per cent, while Ether, the second largest, was trading down more than 10 per cent.

According to CryptoTimes, the crypto market saw an overall liquidation of more than $1 billion over the weekend amid tariff fears.

"Global markets experienced significant turbulence over the weekend, with crypto assets finally succumbing to the broader sell-off that followed Donald Trump’s ‘Liberation Day’ tariff announcement," read a release from trading and investing platform eToro.

But Simon Peters, a crypto analyst for eToro, said that there is light at the end of the tunnel, at least in terms of crypto assets.

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"The US dollar and Treasury yields have retreated significantly since Trump took office, and the Federal Reserve is expected to slow its quantitative tightening," Mr Peters said. "Historically, crypto assets tend to perform well in such environments."

Despite the crypto sell-off, Stefan Rust, founder of TrueFlation and former chief executive of BitCoin.com, pointed out that although crypto was not necessarily bulletproof with regard to tariffs, overall it has proved to be "more solid" than fiat markets.

"I think a lot of people are seeing Bitcoin as that safe haven to gold. Sure, everything has come down but it has come down less, in compound, in contrast to the equities markets," Mr Rust said.

He said media outlets are focusing on crypto market volatility without proper context. He also said the tariffs, much like the Covid-19 pandemic, are inevitably affecting just about everything that was once considered to be untouchable.

"The decline of $10 trillion worth of assets – we haven't seen this in quite some time," he said.

"If you look from a sell-off perspective, the Bitcoin ETFs had very little sell-off in all of this, right? You see the Bitcoin price has actually dropped very little in contrast to the other markets, so I think it's held pretty good."

There has been some concern, however, that tariffs on the technologies that help to make cryptocurrencies possible could affect the stability of crypto in the weeks and months ahead. Even without tariffs, crypto mining, the process by which digital assets are obtained, is energy-intensive and requires special computer hardware.

In an effort to preserve electricity this year, crypto mining was banned in several locations throughout Russia.

If computer hardware and generators become more expensive due to tariffs, the reliability of crypto could be affected. Yet Mr Rust said that so far, in his estimation, there have been exceptions carved out in the tariffs for energy, minerals and even some of the semiconductors needed to make crypto happen.

"They've largely been excluded so I don't think you'll see much of an impact."

He said that when it becomes clear that the crypto markets are not as volatile as the fiat-based markets, over the long haul he expects the panic to subside and crypto's image to be bolstered as a result.

"We'll see more liquidity coming into the market, and liquidity will look for new assets to allocate those funds to to generate asset appreciation," Mr Rust said.