The crypto market experienced significant volatility in early 2025, with Bitcoin briefly dropping below $92,000. Over a 24-hour period, total liquidations across the market reached $2.028 billion, with long positions accounting for $1.766 billion and short positions making up $270 million. Notably, more than 700,000 traders faced liquidations, and the largest single liquidation occurred on Binance for ETHUSDT, valued at over $25.6 million.
Since the holiday season, Bitcoin has seen multiple sharp declines. Below, we explore the key market drivers behind this recent downturn.
Impact of DeepSeek on Market Sentiment
On January 27, DeepSeek, a domestic AI model, surpassed ChatGPT in downloads, topping the U.S. App Store charts. This achievement drew widespread attention from tech and investment communities globally. Despite its performance rivaling high-cost models like those from OpenAI, DeepSeek was reportedly trained for less than $6 million. This development challenged the prevailing "scale-equals-success" narrative in the AI industry and was viewed by some as a black swan event with potential financial implications.
On January 29, U.S. officials commented on DeepSeek's impact, alleging intellectual property theft and initiating a national security review. This contrasted with earlier remarks from former President Trump, who had praised DeepSeek as a positive technological advancement. By February 2, Cathie Wood, CEO of ARK Invest, noted that DeepSeek demonstrated that AI success does not require massive funding, potentially accelerating cost reductions in the sector.
The reaction in traditional markets was immediate: NVIDIA's stock fell 5.3%, the Nasdaq dropped over 400 points, and nearly a trillion dollars in market value was wiped out. As risk-on assets, Bitcoin and other cryptocurrencies also felt the pressure, with Bitcoin declining 4.4% and Ethereum falling 3.8%. Market recovery remained sluggish throughout the week, leading to another sharp decline at the start of the following week. The ongoing correlation between crypto and equities suggests that further market movements may depend on U.S. stock market performance.
Trump Administration Tariffs and Market Reactions
During his presidential campaign, Donald Trump promised aggressive tariff policies, which have begun to take effect. On February 2, the U.S. government announced a 25% tariff on imports from Canada and Mexico, alongside a 10% duty on Canadian energy resources. These measures were set to take effect within days, with the White House warning of possible escalation in response to retaliation.
Earlier, on January 1, Trump signed an executive order imposing an additional 10% tariff on goods imported from China. The administration framed this as part of a broader protectionist strategy. By February 3, Trump indicated that new tariffs targeting the European Union were imminent, citing trade imbalances—though specific details were not provided.
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 spilling over into altcoins and Bitcoin." In response to these developments, Bitcoin fell to around $91,000, its lowest level in over two weeks. However, some analysts, like Jeff Park of Bitwise Alpha, suggested that Trump’s trade policies could weaken the U.S. dollar and lower Treasury yields, potentially boosting Bitcoin’s long-term appeal.
El Salvador’s Reversal on Bitcoin Legal Tender Status
On January 30, reports emerged that El Salvador’s Congress had passed legislation amending the country’s Bitcoin law to comply with IMF agreements. A lawmaker from the ruling party stated that the amendments were intended to ensure the "permanence" of Bitcoin as legal tender while promoting its "practical use."
However, by February 2, Congress—controlled by the ruling party—quietly passed further amendments that effectively stripped Bitcoin of its status as official currency, making its use entirely voluntary. This reversal came after nearly two years of pressure from the IMF, which made a $1.4 billion loan contingent on reducing the government’s exposure to Bitcoin.
El Salvador, the first country to adopt Bitcoin as legal tender, thus became the first to abandon the policy. Key changes included:
- Bitcoin is no longer considered "currency," and businesses are not required to accept it.
- Its use is now optional, with no legal tender status.
- The government will no longer accept Bitcoin for tax payments.
Although the ruling party approved these changes, they did so without fanfare. President Bukele, typically active on social media, has not commented publicly. Interestingly, on-chain data shows that El Salvador continues to accumulate Bitcoin, adding 5 BTC on February 1 for a total holding of 6,055 BTC, valued at over $618 million. Earlier in January, the country had purchased 11 BTC, and reports suggest plans to install Bitcoin nodes in every household.
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Frequently Asked Questions
Why did Bitcoin drop below $92,000?
Multiple factors contributed, including broader risk-off sentiment driven by equity market declines, concerns over new U.S. tariffs, and policy changes in El Salvador.
How did AI developments affect the crypto market?
The rapid rise of DeepSeek challenged prevailing narratives about AI investment, leading to a sell-off in tech stocks that spilled over into risk assets like cryptocurrencies.
What was the impact of Trump’s tariffs?
New tariffs raised fears of a trade war and potential economic slowdown, leading to short-term volatility in both traditional and crypto markets.
Is El Salvador still buying Bitcoin?
Yes, on-chain data indicates that the country continued to accumulate Bitcoin even after reversing its legal tender policy.
Could tariffs actually help Bitcoin in the long run?
Some analysts believe that protectionist policies could weaken the U.S. dollar and make alternative stores of value like Bitcoin more attractive.
Where can I track real-time market movements?
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