
Source: TradingView, CNBC, Bloomberg, Messari
The Groundhog’s Day Massacre
Crypto saw its shadow on Sunday, though it is difficult to know if that means 6 more weeks of winter, or the end of the brutal 6-week bear market that has been foolishly masqueraded by many as a bull market. Since the FOMC meeting in mid-December, Bitcoin (BTC), Solana (SOL) and Ripple (XRP) are now down -11% each, Ethereum (ETH) is -35%, and generically most other tokens are down 25-80%. The majority of tokens in our coverage universe have fully erased any gains seen post the election. The total crypto market cap, excluding Bitcoin (i.e. the horrifically named “altcoins”) shows how fast this has retraced in recent days.
Source: TradingView
This past weekend had to have been top 10 in terms of disastrous price action. On the one hand, that highlights how bad of a weekend this was. On the other hand, it reminds you how often this actually happens. Drawdowns of 30%+ or more are quite frequent in digital assets.
Source: Glassnode
It is even more comforting to know that, despite the drawdowns and volatility, every 4-year rolling return of digital assets (as measured by the Bloomberg Galaxy Crypto Index) has been positive. The graph below shows 4-year rolling returns over the past 8 years. Similar to the equity market, you can’t have upside volatility without downside volatility. However, in equities, investors have come to terms with this and expect future returns to be positive, whereas due to the newness of crypto, and the insane amount of misinformation, crypto investors can’t seem to come to terms with the fact that this is potentially one of the best long-term investment classes.
The BGCI had annual returns as follows over the past 7 years:
- 2019: +7.06%
- 2020: +276.74%
- 2021: +153.39%
- 2022: -70.19%
- 2023: +139.56%
- 2024: +65.95%
Source: Arca Internal Calculations and Bloomberg
Back this weekend, over $2 billion of futures positions were officially liquidated over the weekend (though it could be as much as
5x that in reality), mainly on Sunday, which is the largest liquidation event in crypto’s history, in dollar terms. But as we’ve shown in previous weeks, that has been the norm since the November election. The total market capitalization of the industry has grown, as has the number of tokens, while the number of market makers and secondary liquidity has shrunk. That’s a recipe for disaster for leverage.

This past weekend’s downward price action will be attributed to the trade wars, which started Friday afternoon with Trump’s announcement of the steep and imminent tariffs on Canada, Mexico and China to a lesser extent. I’ll refrain from thoughts on the impacts of the tariffs on global markets, partly because I don’t know, and partly because I doubt it will be relevant. President Trump is a deal-maker, and right or wrong, he believes the U.S. has the upper hand since nearly 80% of both Canada’s and Mexico’s exports go to the United States, while just north of 15% of U.S. exports go to Canada and Mexico. Canada and Mexico cannot sustain this burden financially, as both are extremely dependent on the United States to keep their economies rolling. Goldman Sachs was the first to announce that they believe the panic will fade quickly and that any market reaction will likely be an overreaction. Again, we’ll see.
In everything I wrote above, the only thing relevant to digital assets was “Friday afternoon”. All other markets were closed over the weekend as headline after headline emerged. So crypto bore the brunt of any derisking.
Now, the history books will say that tariffs caused a crypto crash.
Tariffs did NOT cause a crypto crash.
Market dynamics caused a crypto crash, and tariffs were a convenient headline to send crypto where it was likely headed anyway.
It was interesting to watch BTC price action immediately when U.S. Equity futures opened Sunday night. As equity futures opened down -1-4%, BTC actually rose. Clearly, macro traders and funds sold BTC over the weekend as a generic risk-off trade to prepare for the U.S. and Asian market opens and then covered shorts or rebought BTC when they could derisk the more natural way on Sunday night. Bitcoin has so many personalities. It is incredibly highly correlated to many factors in short bursts and as a result, has near zero correlation to anything on a longer time horizon.
Why am I so confident that the tariffs themselves have no actual direct result on the price of digital assets? As
written two weeks ago, this is simply what you get with a Trump presidency.
“But let’s not forget that Trump was the president once before. And if you recall, from 2016-2020, Trump (as President), moved equity, commodity, debt and currency markets nearly every week with random Tweets and off-the-cuff comments. He was the first President to use Twitter and social media, and markets did not know how to handle this. But, it rarely affected crypto markets because Trump didn’t care about crypto back then, so most crypto investors either don’t remember this or weren’t even in crypto during this period. So what we saw this weekend is just a preview of what we will see for the next four years – unpredictable volatility.”
Might as well commit that passage to memory because I’ll be cutting and pasting this a lot over the next 4 years. The unpredictability and constantness of President Trump perhaps call for less overall risk-taking, because of the increased randomness and volatility, but not necessarily a revised strategy where trading headlines will become profitable since they can also reverse just as quickly on another soundbyte, and will be so constant.
Moreover, the digital assets market was already on a weak footing for the past 6 weeks, with a variety of theses on why the market would tank or why the market would rip higher. There were theses based on too many coins, bad tech earnings, technical analysis, seasonality, end of cycle, market structure, and everything else under the sun… but I encourage anyone to find a well-written thesis on the relationship between crypto and tariffs written before Friday. There have been many reactions and predictions post the news, but I did not see any before the news. Even Arthur Hayes, who has a penchant for making extreme macro calls based on government financial interference,
didn’t even mention the word “tariff” once in his latest doomsday post (for the record, I found this actually to be bullish, not bearish, but either way, tariffs were not part of the short- or long-term thesis).
It is far more likely that the direction of digital assets was moving lower anyway, and poor weekend liquidity ahead of a nasty equity market open was just a convenient excuse to keep pushing the market til it broke.
Now, what happens when we inevitably get a headline that the tariffs are being rolled, Mexico and Canada conceded, and “Trump won” (and we will, without a doubt, get that headline at some point in the next few weeks regardless of whether or not it happens)? That I’m not sure. Equities, and the DXY, and the VIX and Treasury yields will likely retrace fully, just like they did a week ago following the overreaction to the DeepSeek news, and just like they do after every historical overreaction to Middle East fighting or debt ceiling breaches. And yes, crypto will likely see at least a little bit of a jolt as well. But not to the same effect because the tariff news ultimately had nothing to do with this selloff.
These steep selloffs are simply part of the crypto lore. Even as implied volatility has shrunk over the past five years, the fast futures-driven liquidation moves in both directions persist.
The market will likely recover over time, or perhaps even quickly, as there has been nothing but positive news for the past 3 months and that will eventually show up in prices. But when it happens, it will be for an entirely different reason.