Bitcoin Plunges to Three-Month Low Amid Tariff Fears

Bitcoin, the world's most popular cryptocurrency, has dropped to its lowest level in three and a half months, sparking concerns about the impact of geopolitical tensions and tariffs on its price. The cryptocurrency fell below $88,000 on Tuesday, marking a 7% decline from its previous level and its lowest point since November 2024. This sharp decrease has resulted in significant losses for traders holding long positions, with over $1 billion in leveraged long positions being liquidated.



The backdrop for this decline is a convergence of global trade tensions and a series of regulatory shifts that have stirred uncertainty. U.S. President Donald Trump's announcement of renewed tariffs on Mexico, Canada, and China, alongside broader economic concerns such as weak consumer sentiment, has caused a sharp drop in investor confidence. The 25% tariffs on European Union goods and Chinese imports have stoked fears of a global trade war, leading to a significant sell-off in the crypto market.

The trade war fears, particularly in light of the ongoing tariff threats from the U.S., have triggered widespread panic, leading to a flight to safety. This dynamic explains why Bitcoin, a highly volatile asset, has lost steam despite the U.S. government's overall friendly stance toward digital currencies. Additionally, the upcoming $5 billion Bitcoin options expiry on February 28 has led to increased volatility, with the max pain level for options being around $98,000. This suggests that investors may attempt to keep Bitcoin price within a specific range, further impacting its volatility and price movements.

The SEC's hands-off approach to crypto regulations has also played a significant role in Bitcoin's recent price decline. The agency's aggressive "regulation by enforcement" stance under the previous administration has been replaced by a more lenient approach under Acting SEC Chair Mark Uyeda and crypto-friendly Commissioner Hester Peirce. This shift in policy has led to the dismissal of enforcement cases against major players like Coinbase and MetaMask, signaling a more favorable regulatory environment for the crypto industry. However, this change in policy has also contributed to uncertainty among investors, as they await clear legislation and guidance from regulators.

Institutional investors' withdrawal from Bitcoin ETFs has further contributed to the overall market sentiment and Bitcoin's price trajectory. The materials mention near-record withdrawals of $1 billion from Bitcoin ETFs, indicating that institutional investors are pulling back from the market. This is a clear sign of reduced confidence and increased uncertainty among these investors. The large-scale liquidations and selling pressure from these withdrawals can drive down Bitcoin's price, as seen in the recent sharp decline. The materials mention that over $1 billion in leveraged long positions were liquidated, further exacerbating the selling pressure.

Despite the short-term volatility and uncertainty, data suggests that the weakening U.S. dollar and the potential for rising inflation could make Bitcoin more attractive in the long run. This could help maintain a level of optimism among investors, even as they reassess their short-term positions. As Bitcoin's price continues to be shaped by global and domestic factors, the relationship between tariffs, trade wars, and cryptocurrency remains complex. While the U.S. government's pro-bitcoin stance may provide long-term benefits, short-term volatility driven by global economic pressures continues to challenge investors.