Market Fears US-EU Trade War as Bitcoin Drops Over 3%

Global markets reacted to U.S. President Donald Trump's announcement of 10% import tariffs on eight NATO countries, including France, Germany, and the United Kingdom, effective February 1. The tariffs, which could rise to 25% by June 1, are tied to Trump's demand for the complete purchase of Greenland. European leaders have criticized the move as blackmail.

The U.S. tariffs threaten to reignite a trade war with the EU, which is reportedly considering $108 billion in retaliatory measures. The European Union may impose tariffs or restrict U.S. companies from its market as part of its response to Trump's Greenland-related demands.

Bitcoin, which had previously been resilient to geopolitical tensions, saw a sharp decline of over 3% in early trading following the announcement. The drop was attributed to heightened market uncertainty and investor flight to safer assets. Total long positions liquidated in crypto markets exceeded $750 million within four hours.

Why Did This Happen?

Trump's tariffs are seen as part of a broader pattern of aggressive trade policies, including previous moves in April 2025 that caused market volatility. Analysts suggest that the current threat adds to existing concerns about U.S. trade relations with major allies and increases the likelihood of retaliatory actions from the EU.

The EU's potential response includes measures that could affect U.S. financial markets and investments. European officials are reportedly preparing for discussions with Trump during the World Economic Forum in Davos, where trade tensions are a top concern.

How Did Markets React?

European stocks and the euro were under pressure. The euro fell to a seven-week low in early trading, and European equity markets were expected to face downward pressure.

The broader market reaction has been mixed. While European defense stocks rose due to geopolitical uncertainty, major U.S. indexes and European benchmarks showed little movement.

Bitcoin and other cryptocurrencies, however, were more sensitive to the trade war fears. Bitcoin briefly fell below $92,000, marking a sharp decline compared to its recent performance.

What Are Analysts Watching Next?

Analysts are closely monitoring how the U.S. and EU will manage the escalating tensions. The World Economic Forum in Davos is expected to be a key venue for diplomatic efforts, with European leaders seeking leverage in negotiations with Trump.

Market watchers are also looking at how Trump's policies might impact U.S. economic credibility. Concerns about the independence of institutions like the Federal Reserve and the potential for a U.S.-EU trade war could affect investor sentiment.

Crypto markets remain particularly vulnerable to geopolitical and policy shifts. Unlike traditional asset classes, which have held steady or gained during the recent volatility, crypto assets have lagged, highlighting the sector's sensitivity to global tensions.

Investors are advised to monitor developments closely, especially as trade negotiations and market reactions continue to evolve. The outcome of the U.S.-EU standoff could have long-term implications for global trade and financial markets.