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Bitcoin Price Fluctuations Driven by Tariff Announcements: What Investors Need to Know

By Omkar Godbole (All times ET unless indicated otherwise)

Understanding Risk-On and Risk-Off Trading

For those following the financial markets closely, the terms “risk-on” and “risk-off” are likely familiar. Recently, however, we appear to be entering a new phase characterized by “tariffs on/tariffs off” trading. In a risk-on scenario, growth-sensitive assets such as stocks and cryptocurrencies typically rise, fueled by expectations of economic growth or supportive monetary policy. On the other hand, risk-off situations indicate a lack of investor confidence, leading to sell-offs and a preference for safer assets.

The Impact of Tariff Announcements on Bitcoin

This week, President Trump’s tariff announcements have significantly influenced market movements. Early on Monday, Bitcoin (BTC) fell to nearly $91,000 after Canada and Mexico retaliated against the newly imposed tariffs. This marked the beginning of “tariffs on” trading.

However, the situation took a turn as Bitcoin rebounded above $100,000 after Trump paused the tariffs on Mexico for 30 days and announced the creation of a sovereign wealth fund. This announcement sparked hopes of potential investments in Bitcoin, transitioning the market to “tariffs off.” Unfortunately, the bullish momentum was short-lived. Early Tuesday, China retaliated against Trump’s import tax, reigniting “tariffs on” trading and causing BTC to drop over 3% to $98,000, dragging altcoins down with it. Nasdaq futures also fell over 0.5%, and the dollar attracted haven bids.

Future Predictions for Bitcoin and the Crypto Market

Bitcoin and the broader crypto market may experience a rebound if Trump announces an 11th-hour deal with China, similar to the agreements made with Mexico and Canada. Foreign exchange market activities are hinting at this possibility. The AUD/CAD pair is down just 0.3%, suggesting traders are optimistic about a potential resolution to the ongoing tariff war between the U.S. and China.

ING noted, “A cross like AUD/CAD should trade sharply lower in this situation given Canada has dodged tariffs and China has not, but it is only 0.5% lower on the day. That signals markets are pricing in a good chance that the US and China will also strike a deal and delay tariffs.” Nevertheless, the unpredictable nature of President Trump means that heightened volatility is to be expected, and investors should remain vigilant.

Upcoming Crypto Events to Watch

As the crypto landscape evolves, it’s essential to stay informed about upcoming events that may impact the market:

• Feb. 5, 3:00 p.m.: Boba Network’s Holocene hard fork network upgrade for its Ethereum-based L2 mainnet.
• Feb. 6, 8:00 a.m.: Shentu Chain network upgrade (v2.14.0).
• Feb. 13: Start of Kraken’s “gradual” delisting of the USDT, PYUSD, EURT, TUSD, and UST stablecoins for EEA clients, ending March 31.

Macro Economic Indicators to Monitor

In addition to crypto events, macroeconomic indicators can also influence market trends:

• Feb. 4, 10:00 a.m.: The U.S. Bureau of Labor Statistics (BLS) releases December’s Job Openings and Labor Turnover Survey (JOLTS) report.
• Feb. 4, 2:30 p.m.: White House AI and Crypto Czar David Sacks, along with four congressional leaders, will hold a press conference on digital assets cooperation.
• Feb. 4, 7:30 p.m.: Fed Vice Chair Philip N. Jefferson will discuss the “U.S. Economic Outlook and Monetary Policy.”

Key Market Movements and Cryptocurrency Statistics

As the market reacts to tariff-related news, significant changes in price and volume are observed:

• Bitcoin (BTC): Down 1.85% from 4 p.m. ET Monday at $99,347.23 (24hrs: +4.4%)
• Ethereum (ETH): Up 2.3% at $2,777.08 (24hrs: +7.45%)
• CoinDesk 20: Down 2.21% at 3,154.76 (24hrs: +5.33%)

Technical Analysis: Bitcoin’s Current Trends

The daily chart for Bitcoin indicates a classic “stair step” bull run, characterized by price rises followed by consolidations, representing periods of accumulation. The latest consolidation occurred between $90,000 and $110,000, marking the third pattern since the beginning of 2023. A breakout from this range would suggest a continuation of the uptrend. However, it’s crucial to note that gains observed after the second consolidation between $50,000 and $70,000 were significantly less than those seen after the first breakout in late 2023.

Crypto Equity Movements

Investors should also keep an eye on major crypto equities:

• MicroStrategy (MSTR): Closed on Monday at $347.09 (+3.67%), down 1.35% at $342.40 in pre-market.
• Coinbase Global (COIN): Closed at $284.41 (-2.38%), down 0.47% at $283.08 in pre-market.
• Galaxy Digital Holdings (GLXY): Closed at C$28.02 (-1.62%)

Understanding Derivatives Positioning

The perpetual funding rates for SOL, DOGE, ADA, LINK, and AVAX remain negative, indicating a bias for short positions. Should the market environment shift back to “tariffs off,” these coins may experience outsized gains due to a short-squeeze. Additionally, Deribit’s ETH volatility index has decreased from above 100% to 70%, and Bitcoin’s volatility has dropped from Monday’s spike to 61%.

Conclusion: Stay Informed and Be Prepared

As we navigate this ever-changing landscape of tariffs and cryptocurrency, staying informed and prepared is crucial. The ongoing negotiations and market reactions to tariff announcements will likely continue to shape the crypto market. For those looking to invest or trade, understanding these dynamics can help in making informed decisions. Whether you’re interested in buying Bitcoin or exploring other cryptocurrencies, having a solid grasp of market conditions is essential.

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