What’s next for the crypto market after the Trump tariff-fueled price plunge?
2025-02-03
Category: None

Following President Trump’s tariff announcement over the weekend, the 24/7 crypto market was the first to react, with prices plunging considerably amid the risk-off sentiment and various analysts weighing in on what happens next.
Responding to President Trump's plan to implement 25% tariffs on imported goods from Canada and Mexico, with 10% tariffs on Canadian energy and Chinese goods, bitcoin fell more than 10% to a low of around $91,500 before recovering, while other cryptocurrencies saw deeper corrections.
Ether collapsed by approximately 36% to a low of around $2,100 on Monday from its Saturday high, and Solana prices were slashed by 24%, slipping to a low of $176 during the same period.
The memecoin market was one of the hardest hit, with the GMCI Meme index of leading memecoins dropping 40% over the past few days. The President's own memecoin fell 28% since Saturday and is now down 77% from its launch day peak, according to The Block’s Official Trump Price Page.
The import taxes are set to take effect on Tuesday and were levied because the three foreign governments haven't done enough to stem the flow of drugs into the United States, the White House said.
“If tariffs mean stronger dollar, higher inflation and reduced prospects of rate cuts in the short term, it means lower global liquidity for risk-on assets,” analysts at research and brokerage firm Bernstein explained in a note to clients on Monday. “On a longer time frame, as governments carry higher debt and higher deficit, leading to more monetary debasement, bitcoin holds relative value to the dollar, as is evident in bitcoin's long term compounding history. But over short time frames, bitcoin is correlated to risk-assets. Thus, crypto sell off is not surprising.”
However, the Bernstein analysts, led by Gautam Chhugani, said that bitcoin should trade on its own fundamentals after absorbing this initial risk-off shock, having consistently held support in the $90,000 range amid recent sell-offs, driven by strong institutional demand. In Jan 2025, the U.S. spot Bitcoin exchange-traded funds saw $5.3 billion worth of net inflows, aligning with Bernstein's $70 billion annual forecast, while MicroStrategy acquired $2.5 billion in bitcoin and issued $584 million in perpetual preference shares for further purchases.
They argued that with the U.S. moving toward a bitcoin national reserve, ETF and corporate flows should stay strong. The repeal of SAB 121 could also potentially drive bank-backed bitcoin custody, trading and prime credit services, Chhugani said.
Over the longer term, the Trump administration sees crypto as strategic for governance and state finances, aiming to control inflation through deficit cuts, the Elon Musk-led Department of Government Efficiency cost-slashing unit and higher energy production, the Bernstein analysts argued. While foreign governments may retaliate against tariffs by dumping U.S. treasuries, as seen with China shifting to gold, Bernstein expects sovereigns to hoard gold and bitcoin as economic buffers, with the U.S. leading a pro-crypto shift that more nations may follow.
Bernstein predicts bitcoin to reach a price target of $200,000 by the end of 2025.
‘Plaza Accord 2.0’
Meanwhile, Bitwise Head of Alpha Strategies Jeff Park took a more bullish stance, suggesting that as this trade and monetary war unravels, it will send bitcoin “violently higher.”
Park claims that Trump’s tariffs are a temporary tool with a deeper objective: driving down the U.S. dollar and long-term interest rates, ultimately sending bitcoin surging. He framed his argument around the Triffin dilemma — the contradiction where a global reserve currency like the U.S. dollar must be supplied in large amounts to facilitate international trade, but doing so forces the U.S. to run persistent trade deficits, weakening its own economy over time.
According to Park, the U.S. wants to maintain its ability to borrow cheaply, while reducing the structural overvaluation of the dollar caused by its reserve currency status. Tariffs, therefore, are a means to negotiate a “Plaza Accord 2.0” — a multi-lateral agreement to weaken the dollar by reducing foreign dollar reserves and shifting demand toward longer-duration U.S. Treasuries, he argued.
“In other words, Trump is trying to find a way to implement a ‘[yield curve control], not [yield curve control]” strategy within the realms of the executive branch,” Park said. “No doubt [Treasury Secretary] Bessent is on board, recognizing that he was left a bag of trash by Yellen. As a result, the U.S. is charting a path to achieve the holy grail of fiat alchemy: lower dollar and lower yield.”
Park also sees Trump’s personal incentive in lowering the 10-year yield to support his real estate holdings, which will require aggressive intervention beyond just pressuring the Fed. The outcome, he predicts, will be a weaker dollar and lower U.S. rates, fueling an explosion in risk assets, especially bitcoin. As tariffs drive inflation and disrupt global trade, foreign economies will struggle with weak growth and monetary debasement, pushing citizens to seek financial alternatives. Unlike the 1970s, the world is now onchain, meaning bitcoin will serve as a refuge for both sides of the trade war, leading to a violent, accelerated surge in its price, he said.
“You simply have not yet grasped how amazing a sustained tariff war is going to be for bitcoin in the long run,” Park concluded.
However, not everyone in the crypto space is on board with Park’s view, with analyst Alex Krüger seeing tariffs this aggressive as negative for bitcoin and risk assets, with the U.S. economy likely to take a hit.
Krüger noted that markets had expected more gradual or delayed tariffs, and the immediate concern is whether foreign retaliation will escalate the situation further. Prolonged tariffs, he warned, could hurt the U.S. economy, weaken the dollar and push the Fed into a hawkish stance.
“This would be enough to start a sustained bearish trend were it not for significant upside risk as well coming from the tax cutting and deregulation fronts, which makes things very murky,” he said. “I still don't think the cycle top is in, and expect equity indices to print ATHs later in the year. But the probability of being wrong has increased.”
Former U.S. Treasury Secretary and prominent American economist Lawrence H. Summers went further, saying Trump's tariffs “defy economic logic.” However, in response, billionaire hedge fund manager Daniel S. Loeb said deeper, second-order analysis is needed to understand the move, suggesting that Trump may be leveraging tariffs as a geopolitical tool rather than a purely economic policy, highlighting their potential use to crack down on drug trafficking.
Boosting domestic production
Others in the crypto industry were more positive about another potential motive for President Trump’s tariffs move — boosting domestic production.
Tariffs will raise funds for the U.S. and increase domestic production,” Aave founder Stani Kulechov said. “Tariff wars will raise funds for other countries and increase their domestic production. It puts every nation into competing on domestic production.”
“It's not a recession, it's a restructuring of the whole global economy,” Kulechov added. “Crypto will act as a hedge for those who see uncertainty around unravelling equities during the transformation and DeFi yield will be hedge for those who want less uncertainty from the unravelling bond market.”
Meanwhile, Solana co-founder Anatoly Yakovenko offered a pragmatic take, arguing that while tariffs may not be ideal, they might be the least harmful way to reduce the deficit. “[The] U.S. is $2 trillion in the hole. The gov needs to cut $1 trillion in spending and raise $1 trillion in taxes. Tariffs are a consumption tax that favors domestic producers. It’s probably the least dumb way to close the deficit,” he said.
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