Trump's Tariffs Spark 20% S&P 500 Drop, 10% Bitcoin Plunge

Fear has gripped financial markets, largely due to President Donald Trump's tariff announcements. Equities have taken a significant hit, with the S&P 500 already in bear market territory, down 20% from its all-time high and 5% lower in pre-market trading. The FTSE 100, DAX, and CAC 40 have each dropped more than 5%. The crypto market has not been spared from this turmoil. Bitcoin (BTC) fell 10% over 24 hours, dipping below $75,000, and ether (ETH) plunged 22%. XRP and SOL also nosedived more than 20%, while DOGE is down more than 15%. Bitcoin dominance continues to rise, hitting 63%, a level not seen since early 2021. The CoinDesk 20 index, a measure of the broader market, has lost almost 12% in the past day.

China, whose stocks fell 7%, is reportedly considering front-loading stimulus measures to soften the blow. On Friday, it announced a reciprocal 34% tariff on all U.S. goods. Trump, in a post on Truth Social, emphasized the need for tariffs to address massive financial deficits with China and other countries, stating that tariffs are a "beautiful thing" for the U.S. and will reverse the deficit quickly.

Investors are seeking refuge in U.S. bonds, with the 10-year note up 8% year-to-date and the iShares 20+ Year Treasury Bond ETF (TLT) up 6% as investors pile into government debt, pushing yields lower. This drop in yields is a welcome sign for the U.S. administration. Seasoned investor Bill Ackman noted that Secretary of Commerce Howard Lutnick doesn’t appear concerned about a potential economic crash, hinting that Lutnick and Cantor Fitzgerald, the financial services firm he used to head, are long bonds. Ackman suggested on X that they could be positioned to profit from a downturn.

Countries are scrambling to avoid the tariffs, with some already showing signs of conceding and removing tariffs on U.S. imports. The uncertainty surrounding these negotiations will likely keep markets volatile as the Volatility S&P 500 Index (VIX) hits 60 in pre-market trading. These are definitely times to stay alert!

As for the crypto market, the drop in prices has led to a significant increase in bitcoin dominance, which now stands at 63%. This indicates that investors are moving away from altcoins and into bitcoin, which is seen as a safer haven in times of market turmoil. The drop in prices has also led to a decrease in the ether to bitcoin ratio, which is now at 0.01957. This indicates that ether is underperforming relative to bitcoin.

The drop in prices has also led to an increase in the number of users drawing flash loans from Aave, the leading decentralized finance protocol. The number of users rose to 307, the highest since early August 2024. Flash loans leverage Ethereum's atomicity, allowing users to borrow without posting collateral for a fee on condition the loan is repaid in the same transaction in which the user borrowed funds. These types of loans are usually drawn for arbitrage trades that seek to profit from price discrepancies between two markets.