Bitcoin Crashes Below $90K—Is the Bull Run Over or Just Getting Started?
Digital Asset Market: Bitcoin fell below the $90,000 level, pressured by a decline in equities as the crypto market awaits a new catalyst. The price dropped more than 8% to around $86,500, marking a more than 20% drop from its all-time high on Donald Trump's inauguration day. This decline is linked to tough equity sessions and concerns over the economy under the shifting policies of the new administration, contributing to profit-taking and short pressures in the crypto market. The crypto market initially rallied with optimism about Trump's administration benefiting the industry, but the lack of recent positive developments has led to a consolidation phase. Analysts suggest a possible deeper pullback to $80,000 if bitcoin continues to drop, though they expect a long-term recovery by mid-March. Other cryptocurrencies like Ether and Solana's sol also experienced declines, with meme coins suffering significant drops, including a notable decrease in Libra following its brief promotion by Argentine President Javier Milei.
Macro Economics: President Donald Trump announced that U.S. tariffs on imports from Canada and Mexico would proceed as initially planned after a month-long delay. The 25% tariffs on products from these countries, along with 10% duties on Canadian energy, were based on allegations of Mexico's and Canada's failures to control crime and drug trafficking at their U.S. borders. Although Trump had temporarily paused the tariffs following commitments from Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau to enhance border security, he emphasized the U.S.'s need to recoup lost advantages through reciprocal tariffs. This decision is part of Trump's broader strategy involving tariffs, having also imposed duties on Chinese imports, which triggered retaliatory tariffs from China, raising concerns about potential trade conflicts with these significant economic partners. Mexico and Canada had also planned retaliatory tariffs before the temporary pause, highlighting tensions with close U.S. allies and trading partners.
Equities: US stocks fell on Tuesday as President Trump's revived tariff threats and potential curbs on China impacted market sentiment and increased the likelihood of interest-rate cuts. Consumer confidence saw its most significant monthly decline in over four years. The Nasdaq Composite fell 1.6% following a tech selloff, while the S&P 500 and Dow Jones dropped. The cryptocurrency market faced significant declines, with Bitcoin falling below $90,000 for the first time since November and Ether dropping over 10%. Concerns arose from Trump's signals on Mexican and Canadian tariffs and potential tougher chip curbs on China, affecting companies like Nvidia as they await earnings reports.
Nvidia is set to report its fourth-quarter financial results, concluding a highly successful year marked by a 72% increase in annual sales, mainly driven by its GPUs' critical role in deploying AI services like OpenAI's ChatGPT. Despite the company's rapid growth and a 478% stock increase over the past two years, recent concerns have surfaced regarding the sustainability of AI infrastructure growth, potentially affecting Nvidia's future revenue. Reports of major customers like Microsoft adjusting spending plans have contributed to a slowdown in Nvidia's stock performance. However, Nvidia's CEO Jensen Huang remains optimistic, emphasizing the continued need for more GPU capacity due to the scaling law, which predicts AI improvements with increased data and computation. As major tech companies continue to allocate significant capital to AI infrastructure, Nvidia aims to capitalize on the growing demand for its cutting-edge chips amid competition and challenges such as emerging efficient AI models from Chinese startups like DeepSeek.
The Fed and US Treasury: In February, U.S. consumer confidence experienced a notable decline, with The Conference Board's Consumer Confidence Index dropping to 98.3 from January's 105. This marks the most significant decrease since August 2021 and extends a three-month downward trend. Both the "Present Situation Index" and the "Expectations Index" fell below recession-indicating thresholds for the first time since June 2024. Inflation expectations for the next 12 months rose from 5.2% to 6%, driven by persistent price increases in essentials like eggs and growing concerns over trade and tariffs. Skepticism toward current economic policies has further dampened consumer sentiment. Treasury Secretary Scott Bessent acknowledged that the private sector is already in a recession, suggesting that economic challenges are more severe than headline GDP figures indicate. This acknowledgment points to a potential shift in fiscal policy as the administration addresses sluggish business activity, declining consumer confidence, and escalating trade tensions.
With the Federal Reserve unlikely to cut rates in 2025, the Treasury Department under Bessent is proactively aiming to lower borrowing costs by focusing on the longer end of the yield curve. This strategy involves increasing the issuance of short-term Treasury bills while reducing long-term bond issuance, a continuation of policies from the previous administration under Treasury Secretary Janet Yellen. By adjusting the debt issuance strategy, the Treasury seeks to influence long-term yields, thereby reducing mortgage and credit rates to support consumers and businesses. This approach reflects a strategic shift from relying solely on Federal Reserve rate adjustments to a more direct management of borrowing costs through fiscal policy. However, with inflation remaining elevated and consumer confidence waning, the effectiveness and timing of these measures in achieving economic stabilization remain uncertain.
Geopolitical: Ukraine has lost the war, with a lack of a coherent strategy from European allies to change the outcome. As European leaders focus on diplomatic inclusivity and maintaining face at international summits, they fail to devise a robust plan to defeat Vladimir Putin. This strategic vacuum has allowed the US to dominate the narrative, with former President Trump suggesting the war is unwinnable and proposing a deal-making approach. Amid these dynamics, Ukrainian President Volodymyr Zelensky has expressed willingness to resign if it would ensure peace and hinted at exchanging his position for NATO membership. He also pushed back against Trump's demand for $500 billion worth of Ukraine's critical minerals, reflecting a US expectation of reciprocal benefits for its military aid. This scenario underscores the EU's strategic inadequacy, as it remains reactive rather than proactive in international conflict resolution.
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Bitcoin’s rapid shift from bullish to bearish sentiment highlights the immaturity of crypto markets and their participants. Though unrelated to Bitcoin, a failed memecoin frenzy and a Bybit hack contributed to the downturn, sending ripples through Ethereum and the broader crypto space. Meanwhile, traditional markets are also struggling, pushing interest rates lower—potentially setting the stage for Bitcoin’s next rally. A lack of immediate news should not be mistaken for bad news; expecting the Trump administration to prioritize crypto markets early in the term was unrealistic. In the short term, Bitcoin at $80K remains a strong possibility, though in the long term, bearish sentiment could once again give way to bullish momentum.
Beyond crypto, global financial markets are still processing Trump’s aggressive tariff stance. Initially dismissed as political posturing, the growing risk of a full-scale trade war has become harder to ignore. The administration’s actions are prompting Mexico, Canada, China, and the EU to prepare retaliatory measures, raising fears of prolonged economic disruption. The U.S. has not been this economically isolated in decades, and the consequences of escalating trade tensions could be severe, potentially dampening global growth and market stability.
Investors are searching for stability as uncertainty looms over traditional and digital asset markets. While Bitcoin has often been touted as a hedge against economic turbulence, its recent volatility questions that narrative. However, with central banks maintaining a loose monetary stance and liquidity likely to increase over time, Bitcoin’s next bull run may be closer than it seems. The coming months will test whether crypto can mature beyond its speculative roots or if it remains at the mercy of sentiment-driven swings.
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