The final days before the 2025 work resumption witnessed a sharp downturn in the crypto market, with Bitcoin briefly falling below $92,000. Over a 24-hour period, total liquidations surged to $2.028 billion. Of this, long positions accounted for $1.766 billion, while short positions made up $270 million. Additionally, more than 700,594 traders faced liquidation globally, with the largest single liquidation order occurring on Binance for ETHUSDT, valued at $25.635 million.
Since the beginning of the Lunar New Year holiday, Bitcoin has experienced multiple sudden drops. This article explores the key market factors behind these declines.
DeepSeek Triggers a "Mini Financial Crisis"
On January 27, the Chinese AI model DeepSeek surpassed ChatGPT in downloads, topping the U.S. App Store charts. This achievement attracted widespread attention from global tech sectors, investors, and media outlets. Notably, DeepSeek's performance rivals that of high-cost, cutting-edge models like those from OpenAI, but its training expenses were under $6 million. This disruption challenges the core belief of the AI industry that "massive investment yields miracles," leading financial experts to label it a black swan event capable of triggering a financial crisis.
By January 29, several U.S. officials had responded to DeepSeek's impact, accusing it of "theft" and initiating a national security review. Interestingly, just a day earlier, former President Donald Trump had praised DeepSeek as a positive technological advancement. On February 2, Cathie Wood, CEO of ARK Invest, stated in an interview that DeepSeek demonstrates that success in AI does not require exorbitant funding and accelerates cost collapse.
The influence of DeepSeek contributed to a 5.3% drop in Nvidia's stock and a decline of over 400 points in the Nasdaq, wiping nearly $1 trillion from the U.S. stock market's value. As risk assets, Bitcoin and other cryptocurrencies also felt the impact, with Bitcoin falling 4.4% and Ethereum dropping 3.8%. Despite a week of attempted recovery, market performance remained weak, leading to another significant drop at the start of the following week. The future trajectory of the crypto market may depend heavily on the performance of U.S. stocks after market reopening.
Trump Administration Implements Tariff Policies
Campaign promises from former President Donald Trump regarding tariffs have begun materializing. On February 2, the U.S. government announced a 25% tariff on imports from Canada and Mexico. Trump signed the executive order imposing an additional 25% duty on products from these countries, including a 10% tariff on Canadian energy resources. These measures were set to take effect on February 4. The White House indicated that retaliatory actions could lead to even stricter tariffs.
Earlier, on January 1, Trump signed an order imposing a 10% tariff on goods imported from China. The White House clarified that this would be an additional levy on existing tariffs. Trump stated that this move aligns with his supported "protectionist measures."
On February 3, Trump expressed intentions to impose new tariffs on the European Union, reiterating concerns about the U.S. trade deficit with the EU and insufficient imports of American automobiles and agricultural products. While he did not specify tariff levels or a timeline, Trump assured that developments would follow "soon."
According to Bloomberg, Caroline Bowler, CEO of BTC Markets, noted, "Trump’s tariff policies are affecting the entire market, with fears of a trade war and stagflation-driven recession spreading to altcoins and Bitcoin." Following the tariff news, Bitcoin fell to around $91,000, its lowest in over two weeks. Conversely, Jeff Park, Head of Strategy at Bitwise Alpha, suggested that Trump’s trade policies could ultimately boost Bitcoin’s long-term value by weakening the U.S. dollar globally and lowering Treasury yields.
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El Salvador Revokes Bitcoin’s Legal Tender Status
On January 30, Cointelegraph reported that El Salvador’s Congress had swiftly passed legislation amending its Bitcoin law to comply with International Monetary Fund (IMF) agreements. Elisa Rosales, a ruling party legislator, stated that the amendments aimed to ensure the "permanent status" of Bitcoin as legal tender while promoting its "practical use."
By February 2, El Salvador’s Congress, controlled by the ruling party, quietly approved amendments to the Bitcoin Law, revoking Bitcoin’s status as an official currency and making its use entirely voluntary. This reform came after nearly two years of pressure from the IMF, which made approval of a $1.4 billion loan contingent on the government "reducing Bitcoin risk."
El Salvador, the first country to adopt Bitcoin as legal tender, has now become the first to abandon this policy. Bitcoin is no longer considered "currency," and its use is entirely optional. Legislators amended six clauses and repealed three others (the original law consisted of 16 clauses). Key changes include:
- Bitcoin is no recognized as "currency," and businesses are not required to accept it as payment.
- Usage is now voluntary, stripping it of法定 payment power.
- The government will no longer accept Bitcoin for tax payments.
Although the ruling party reluctantly accepted these changes, they did not publicize them widely. Despite President Nayib Bukele’s active social media presence, he has yet to comment on the matter. However, on-chain data shows that El Salvador continues to accumulate Bitcoin. On February 1, the country added 5 BTC, bringing its total holdings to 6,055.18 BTC, valued at approximately $618 million. Earlier, on January 20, El Salvador had acquired 11 BTC worth about $1.11 million. On January 14, Bitcoin Magazine reported that Max Keiser, Senior Bitcoin Advisor to President Bukele, revealed plans to install Bitcoin nodes in every household across the nation.
Frequently Asked Questions
What caused the recent Bitcoin price crash?
Multiple factors contributed, including a sell-off in tech stocks due to AI advancements like DeepSeek, new U.S. tariff policies affecting global trade, and regulatory changes in El Salvador regarding Bitcoin’s legal status.
How did DeepSeek impact the crypto market?
DeepSeek’s rise challenged established AI funding models, causing volatility in tech stocks. Since cryptocurrencies often correlate with risk assets, this triggered sell-offs in Bitcoin and Ethereum.
What are the implications of Trump’s tariffs on crypto?
Short-term uncertainty and market panic caused price drops. However, some analysts believe weaker USD and lower yields long-term could make Bitcoin more attractive as a hedge.
Is Bitcoin still legal tender in El Salvador?
No, recent amendments revoked its official currency status. Usage is now voluntary, and businesses are no longer mandated to accept it.
Should I be concerned about further market liquidations?
High leverage trading amplifies volatility. It’s advisable to monitor market trends, set stop-loss orders, and diversify investments to mitigate risks.
Where can I stay updated on crypto market changes?
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