Bitcoin, Ether Plunge 5.6%, 10.7% Amid US-China Trade War Fears

Bitcoin and Ether experienced significant declines during the early Asian trading hours on Wednesday, as investors grew increasingly concerned about the potential for a prolonged US-China trade war. The market's reaction was driven by fears that President Donald Trump's new tariffs would take effect, further escalating tensions between the two economic superpowers.

Crypto markets, much like equities, were heavily influenced by the mounting uncertainty. Any hopes for a near-term resolution to the tariff dispute faded quickly as the deadline for negotiations loomed. Bitcoin's price dropped by 5.6% to $75,523, while Ether slid by 10.7% to $1,417. The broader cryptocurrency market also felt the pressure, with the total market capitalization falling by 7.2% to $2.4 trillion in the last 24 hours, despite some scattered gains in certain altcoins.

Investor confidence was further shaken when the Trump administration issued a 24-hour ultimatum to China, demanding the withdrawal of its 34% retaliatory tariff on US goods. Failure to comply would result in a 104% import duty on Chinese exports, exacerbating the economic strain.

The tariff tensions also had a significant impact on traditional markets. All three major US stock indices ended Tuesday in the red, with the S&P 500 closing below 5,000 for the first time in nearly a year. The uncertainty surrounding Trump's shifting rhetoric on tariffs has added to the volatility, leaving investors uncertain about the future direction of the markets.

While cryptocurrencies are often viewed as uncorrelated to traditional financial systems, recent trends indicate otherwise. During periods of broad market stress, Bitcoin and Ether have increasingly mirrored the movements of tech stocks and broader indices. This correlation is particularly evident during risk-off periods when investors retreat from volatile assets across the board.

Market participants are now focusing on Thursday’s US Consumer Price Index (CPI) report, which could further influence market sentiment and crypto asset prices. A CPI reading above 3.4% could exacerbate market concerns about persistent inflation, potentially triggering another wave of equity and crypto selloffs. Conversely, a softer CPI reading below 3.2% could provide a brief reprieve, dampening inflation fears and cushioning the blow from trade tensions, potentially lifting both equities and crypto.

Bitcoin, which has held up better than Ether in recent days, could benefit from a softer CPI reading. This scenario might bolster views that Bitcoin's market behavior is beginning to diverge from traditional risk assets during episodes of macro uncertainty.