Bitcoin and cryptocurrencies have become synonymous with extreme volatility. Investors have grown accustomed to this, but last week’s price action was different. Because the “Trump trade” is back.
In just a few days, Bitcoin’s price has fluctuated by more than $20,000 between highs and lows. Bitcoin looks set to face another turbulent week ahead, with a series of macroeconomic issues causing volatility.
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From new highs to sudden crashes
Last week began on a high for Bitcoin, with the price rising to over $126,000 on Monday, a new all-time high. Several factors caused the rise.
The price of US risk assets is Recently, it has shown a high correlation with Bitcoin and is on a steady upward trend. Sanae Takaichi’s L also energized the market.He was elected as the new leader of Japan’s ruling party on October 4th.
She is the political successor to Shinzo Abe, the architect of Abenomics. Markets expect the prime minister to pursue easy monetary policy despite Japan’s high inflation.
After reaching its all-time high, Bitcoin underwent a natural correction and stabilized around the $122,000 level for most of the week. But around 4pm UTC on Friday, markets were thrown into turmoil when President Donald Trump suddenly posted on social media about restricting China’s rare earth exports, calling the move “an extremely hostile act.”
Revival of “Trump Trade”
He said he was unsure whether he would meet with President Xi Jinping at the APEC summit in two weeks, and suggested he could impose significant additional tariffs on China. The sudden post shook the risk asset market. Bitcoin’s price immediately fell to $118,000, and U.S. stock indexes such as the Nasdaq, S&P 500, and Dow Jones all fell about 2%.
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But the real bombshell fell after the US stock market closed. Trump made another post on social media. In it, he announced new 100% tariffs on all Chinese goods and threatened to impose export restrictions on all major software starting November 1.
The crypto market, the only functioning asset market at the time, absorbed all the impact. The price of Bitcoin temporarily fell to the $102,000 level on some exchanges. At the same time, most altcoins fell by more than 30%, and some by more than 50%.
Was the crash just a “liquidation cascade”?
The mood in the cryptocurrency market subsided following the sharp decline. New 100% tariffs on China are an obvious negative, but were they bad enough to cause Bitcoin to fall by $20,000? Industry experts think otherwise.
They attribute the sudden large drop to a liquidation cascade of futures positions on permanent decentralized exchanges (DEXs). The domino effect wiped out a huge number of leveraged long positions built up during the rally, leading to a sharp decline. According to user testimonies, stop loss triggers did not work on some exchanges.
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An estimated $19.21 billion was liquidated in 24 hours. Most were long positions ($16.74 billion), but short positions of $2.47 billion were also eliminated. This is 12 times the previous record of $1.6 billion in liquidations in a single day during the FTX crash.
The liquidation evaporated a huge amount of investor money. However, there is an upside to this in the short term. Open interest in crypto derivatives, which had been a significant source of pressure on the market, has been completely reset. Prices could rise if new positive macro signals emerge, such as President Trump reversing his threat of 100% tariffs.
The positive news came surprisingly quickly over the weekend. China did not retaliate with its own tariffs. Vice President J.D. Vance mentioned the possibility of dialogue with China in a media interview. On Sunday morning, President Trump posted on social media: “Don’t worry about China, everything will be fine!” Following this post, Bitcoin’s price quickly recovered to the $114,000 level.
One word from President Trump can cause asset prices to plummet, while another can cause asset prices to recover. This moment brought back memories of the Trump trade we experienced five months ago.
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A stressful week
Will the US-China tariff war return to its previous state, or was this just a skirmish? It’s impossible to know. What is clear is that this issue is likely to lead to further volatility in risk asset prices this week. The Trump trade is just getting started.
This week, October 13th, is Columbus Day in the United States. Major stock markets such as the New York Stock Exchange and Nasdaq will operate as usual, but bond markets will be closed for the holiday.
No major statistical releases are scheduled this week, but Federal Reserve Chairman Jerome Powell is scheduled to give a public address on Wednesday. With the government shutdown and renewed threats of a tariff war, many market participants are expecting a rate cut.
Any hint from Mr. Powell about the future direction of monetary policy could cause big market swings. We hope it will be a profitable week for investors.
