In the final days before markets resumed full activity in 2025, Bitcoin briefly dropped below $92,000, triggering a massive wave of liquidations across the cryptocurrency market. Over the past 24 hours, total liquidations reached **$2.028 billion, with long positions accounting for $1.766 billion** and short positions making up the remaining **$270 million. More than 700,000 traders** were caught in the downturn, including one massive $25.6 million ETH/USDT position liquidated on Binance.
This sharp correction follows a series of volatile swings since the Lunar New Year holiday. While Bitcoin remains a dominant force in digital assets, recent macroeconomic developments and geopolitical shifts have intensified pressure on risk assets—including crypto. Below, we break down the key factors behind this latest market dip.
DeepSeek AI Sparks Market Turbulence
On January 27, Chinese-developed AI model DeepSeek surged past ChatGPT to top the U.S. App Store download charts. The breakthrough captured global attention—not just for its performance, which rivals high-cost models like those from OpenAI, but for its remarkably low training cost of under $6 million.
This efficiency challenged the prevailing "bigger is better" philosophy in AI development, shaking investor confidence in capital-intensive tech giants. The event was widely interpreted as a potential black swan moment for financial markets.
By January 29, U.S. officials responded, launching a national security review and accusing DeepSeek of intellectual property theft—despite earlier praise from former President Trump, who called it an “impressive technological achievement.” On February 2, ARK Invest CEO Cathie Wood reinforced the narrative, stating that DeepSeek proves AI innovation doesn’t require massive spending and could accelerate cost deflation across the sector.
Markets reacted swiftly:
- NVIDIA stock fell 5.3%
- Nasdaq dropped over 400 points
- U.S. equity value erased nearly $1 trillion
As risk assets, Bitcoin and cryptocurrencies followed suit. BTC declined by 4.4%, while Ethereum (ETH) slipped 3.8%. Although markets attempted recovery over the next week, sentiment remained fragile—setting the stage for further declines when new macro pressures emerged.
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Trump’s Tariff Rollout Adds Trade War Fears
Another major catalyst came from Washington: the reimplementation of aggressive trade policies under President Trump.
On February 2, the U.S. government announced a 25% tariff on imports from Canada and Mexico, with a separate 10% levy on Canadian energy resources. Just one day earlier, Trump signed an executive order imposing an additional 10% tariff on all goods imported from China—stacked atop existing duties.
White House officials warned that retaliatory actions could lead to even higher tariffs. On February 3, Trump signaled plans to impose new tariffs on the European Union, citing persistent trade imbalances and insufficient access for U.S. agricultural and automotive exports.
These moves reignited fears of a global trade war and stagflation—a toxic mix of slow growth and rising prices—that traditionally weighs heavily on financial markets.
Caroline Bowler, CEO of BTC Markets, noted:
“Trump’s tariff policy is sending shockwaves across markets. Concerns about trade tensions and economic slowdown are now spreading into altcoins and Bitcoin.”
Bitcoin briefly dipped to $91,000, its lowest level in over two weeks. However, not all analysts see long-term bearish implications.
Jeff Park, Head of Alpha Strategies at Bitwise, argued that these protectionist policies could ultimately boost Bitcoin’s value over time. By weakening the U.S. dollar internationally and potentially lowering Treasury yields due to reduced foreign demand for U.S. debt, tariffs may enhance Bitcoin’s appeal as a hedge against monetary devaluation.
El Salvador Downgrades Bitcoin’s Legal Status
A symbolic blow to crypto sentiment came from El Salvador—the first country to adopt Bitcoin as legal tender.
On January 30, reports from Cointelegraph revealed that El Salvador’s legislature had quietly passed amendments to its original Bitcoin Law under pressure from the International Monetary Fund (IMF). The changes were tied to the IMF’s approval of a $1.4 billion loan package, conditional on reducing Bitcoin-related fiscal risks.
By February 2, the ruling party had officially revised six provisions and repealed three others from the original 16-clause law. Key changes include:
- Bitcoin is no longer considered legal tender
- Businesses are no longer required to accept Bitcoin payments
- The government will no longer accept Bitcoin for tax payments
- Usage becomes entirely voluntary
While President Nayib Bukele has remained silent on social media—unusual given his active online presence—on-chain data tells a different story.
Despite stepping back from mandatory adoption, El Salvador continues to accumulate Bitcoin:
- Purchased 5 BTC on February 1, bringing total holdings to 6,055.18 BTC (~$618 million)
- Added 11 BTC on January 20
- In mid-January, Max Keiser, Bukele’s senior Bitcoin advisor, revealed plans to install a Bitcoin node in every household
This contradiction—reducing regulatory enforcement while quietly expanding infrastructure—suggests a strategic pivot rather than a full retreat.
Frequently Asked Questions (FAQ)
Q: What caused the $2 billion in crypto liquidations?
A: A combination of macroeconomic factors—including AI-driven tech sell-offs, new U.S. tariffs, and policy shifts in early Bitcoin-adopting nations—triggered broad risk-off behavior, leading to margin calls and cascading liquidations.
Q: Is Bitcoin still a good hedge against inflation?
A: Historically, investors view Bitcoin as a hedge against monetary debasement. However, in the short term, it often behaves like other risk assets during market stress. Its long-term store-of-value proposition remains debated but resilient among institutional adopters.
Q: Did El Salvador really abandon Bitcoin?
A: Not entirely. While it removed mandatory usage and legal tender status, the government continues buying Bitcoin and investing in infrastructure—suggesting a shift toward voluntary adoption rather than rejection.
Q: How do U.S. tariffs affect cryptocurrency prices?
A: Tariffs can weaken global trade and strengthen inflation fears, which may hurt risk assets like crypto in the short run. But if they lead to dollar weakness or loss of confidence in traditional finance, they could boost demand for decentralized alternatives like Bitcoin.
Q: Can AI developments really impact financial markets?
A: Yes. Innovations like DeepSeek challenge established players and disrupt investment theses—especially in sectors like semiconductor and cloud computing that underpin AI growth. When valuations are called into question, spillover effects hit adjacent markets, including digital assets.
Q: What should traders watch next?
A: Monitor U.S. equity trends (especially Nasdaq and tech stocks), geopolitical trade developments, and on-chain accumulation patterns in major Bitcoin holders like nation-states and ETFs.
Core Market Takeaways
The recent volatility underscores a critical truth: Bitcoin is increasingly influenced by macro forces, not just crypto-native events.
Three core keywords define this phase:
- Bitcoin price correction
- Cryptocurrency market volatility
- Macro-economic triggers
While technical indicators matter, today’s traders must also track AI innovation cycles, trade policy shifts, and sovereign crypto strategies to anticipate major moves.
As traditional finance and digital assets grow more interconnected, understanding these cross-market dynamics becomes essential—not just for survival, but for opportunity.
Even amid uncertainty, strategic investors recognize that pullbacks often precede consolidation—and potential breakout phases. With El Salvador still accumulating, institutional interest holding strong, and macro narratives evolving rapidly, the long-term trajectory for digital assets remains one of transformation and resilience.