Bitcoin is undergoing a significant correction, reminiscent of earlier market downturns this year. Renewed trade tensions between the U.S. and China have triggered a selloff across the crypto landscape, with Bitcoin struggling to maintain crucial support levels. As traders brace for potential extended volatility, the recent U.S. policy announcements have led to alarming price drops, liquidations, and overall market stress.
Tariffs and Export Controls Trigger Crypto Selloff
October began on a bullish note for the crypto market, with Bitcoin surging nearly 18% and reaching new heights above $126,000. However, the sentiment shifted dramatically following President Biden’s announcement of new 100% tariffs on Chinese imports and stringent export controls on AI and semiconductor-related software.
Market reactions were swift. Within mere days, Bitcoin tumbled over 13%, settling in the low $107,000 range. This staggering drop resulted in over $19 billion in leveraged positions being liquidated, with $9.4 billion wiped out in just a single day—one of the sharpest intraday declines of the year, catching many short-term traders off guard.
Liquidity Tightens as Volatility Spreads
As Bitcoin prices plunged, liquidity across crypto exchanges also diminished, complicating price discovery and placing additional pressure on smaller tokens. Altcoin markets exhibited instability, with increasing spreads and slippage across most trading pairs. The collapse of the USDE stablecoin during this period underscored the intricate relationship between stablecoin liquidity and overall market stability. As liquidity waned, forced sales and liquidations became more frequent, creating a detrimental feedback loop that further pushed prices down and amplified market fears.
Institutional Selling Meets Retail Buying
In the wake of these developments, institutional investors began reducing their risk exposure within digital assets. Notably, ETF outflows surged in the days following the trade announcements, with some portfolios gravitating toward cash or lower-beta assets. Despite this trend, Bitcoin holdings among public companies remained stable, with over 172 firms still listing Bitcoin on their balance sheets.
Conversely, retail investors demonstrated resilience, pouring over $1.1 billion into Bitcoin markets during the downturn. Exchange data indicates a rise in buying volume from small and medium accounts, reflecting a sustained interest in long-term holding, even amidst heightened short-term volatility.
Market Outlook Remains Tied to Global Policy
Analysts at Ecoinometrics have noted that the current correction bears similarities to the March–May downturn, which persisted for nearly three months. That decline was also precipitated by geopolitical tensions and took weeks for market participants to regain their risk appetite.
Currently, Bitcoin is testing support at the $107,000 mark. If trade tensions continue to escalate, this correction may linger into November. Much hinges on policy developments in Washington and Beijing, with any signs of easing tariffs or diplomatic discussions between the two nations potentially stabilizing risk markets, including crypto.
