In-depth Analysis | Trump's Tariff Policy Triggers a Chain Reaction, Where Exactly is the Bottom of the Crypto Market?

Original Title: ++Tariffs and Turmoil++

Original Authors: UkuriaOC, CryptoVizArt, Glassnode

Compiled by: Daisy, ChainCatcher

The Trump administration announced the "Liberation Day" tariff policy, leading to severe turbulence in the financial markets, with major macro indices generally declining, and the digital asset market was no exception, experiencing a comprehensive downturn.

Summary

• The news of increased tariffs in the U.S. has severely disrupted major global financial markets, with several markets experiencing one of the worst trading days since March 2020.
• The inflow of funds into digital assets has nearly stagnated, with liquidity significantly contracting, bringing strong downward pressure.
• However, from the price trends of Bitcoin and Ethereum, as prices dip, the scale of losses being realized is gradually decreasing, which may indicate that the selling pressure in the market is nearing exhaustion in the short term.
• The decline in the entire digital asset market is widespread. The market capitalization of altcoins has dropped from $1 trillion in December 2024 to the current $583 billion.
• Comprehensive analysis of on-chain and technical models shows that to regain upward momentum, Bitcoin must reclaim the $93,000 level. The key support zone for bulls is the range between $65,000 and $71,000.

Market Wide Decline

The Trump administration's announcement of the "Liberation Day" tariff policy has triggered severe turbulence in the financial markets, with major stock indices generally declining. The U.S. policy stance has shifted towards promoting a weaker dollar, lower interest rates, falling oil prices, and reduced fiscal spending. These factors combined could lead to a significant slowdown in the U.S. economy and trigger a substantial contraction in overall liquidity.

The uncertainty brought by tariffs has become the catalyst for rising "risk-off" sentiment in the market, triggering large-scale sell-offs, with several major financial indices recording their worst performances since March 2020.

Source: Yahoo Finance

The digital asset market is particularly sensitive to changes in global liquidity and has also not escaped this downturn, with many cryptocurrency prices experiencing double-digit declines.

As the leading asset, Bitcoin's price has fallen from $83,500 to $74,500, with a market capitalization evaporating by approximately $150 billion.

Ethereum, as the second-largest cryptocurrency, has seen even more severe declines, with its price dropping from $1,800 to $1,380, resulting in a market capitalization decrease of about $40 billion.

Since the beginning of the year, the net inflow of funds into the two major cryptocurrencies has significantly decreased. This trend is primarily reflected in the 30-day "realized market cap" changes, which measure the monthly net capital flow of assets.

• Bitcoin's monthly inflow peaked at $100 billion and has now contracted to about $6 billion;
• Ethereum's monthly inflow peaked at $15.5 billion and has now turned into a net outflow of $6 billion.

The inflow of funds into the Bitcoin network is gradually stagnating, indicating a lack of new incremental funds to support higher prices. The outflow of funds from Ethereum is mainly due to high-priced ETH being spent at lower levels, resulting in capital losses. This also indicates that Ethereum currently faces greater resistance compared to Bitcoin, and its market performance is relatively weaker.

If we take the collapse of FTX at the end of 2022 as a starting point to observe the overall changes in the "realized market cap" of Bitcoin and Ethereum, we can quantify the capital scale absorbed by these two assets since the low point of this cycle.

• Bitcoin's realized market cap has grown from $402 billion to $870 billion, an increase of $468 billion, or 117%;
• Ethereum's realized market cap has grown from $183 billion to $244 billion, an increase of $61 billion, or 32%.

The gap in inflows between the two partially explains the divergence in market performance of the two assets since 2023. Ethereum has attracted significantly less capital and new demand during this cycle compared to Bitcoin, leading to a relatively weaker price increase and failing to reach new highs, while Bitcoin has already surpassed the $100,000 mark in December 2024.

The MVRV ratio is used to measure the relationship between spot prices and realized prices, reflecting the unrealized gains or losses of the average asset holder. When the MVRV ratio is above 1, it indicates that the average holder is in a state of unrealized gains; below 1 indicates a state of unrealized losses.

Since the start of this bull market in January 2023, the MVRV ratios of Bitcoin and Ethereum have shown significant divergence again. Bitcoin investors have consistently held higher unrealized gains, while Ethereum's MVRV ratio fell below 1.0 again in March this year, indicating that most holders have entered the loss zone.

By calculating the difference between the MVRV ratios of Bitcoin and Ethereum, we can identify periods when, on average, Bitcoin holders' paper gains are superior to or inferior to those of Ethereum holders.

• A positive difference indicates that Bitcoin investors' average unrealized gains are higher than those of Ethereum investors;
• A negative difference indicates that Ethereum investors have stronger average profitability.

As mentioned earlier, since the start of this bull market, the average profitability level of Bitcoin investors has consistently been higher than that of Ethereum investors.

As of now, this trend has lasted for 812 days, setting a record for the longest duration on record.

It can be seen that Ethereum's performance in this cycle has been relatively weak, primarily due to the inflow of funds and investment demand being significantly lower than that of Bitcoin. The divergence trend between the two can be further reflected through the ETH/BTC price ratio.

Since the "Merge" upgrade in September 2022, the ETH/BTC exchange rate has dropped sharply from 0.080 to the current 0.0196, a decline of 75%. This is the lowest level for this trading pair since January 2020, with only 500 days out of 3531 trading days having a ratio lower than the current level.

Moreover, this current bull market has almost not seen any phase where Ethereum consistently outperforms Bitcoin, which is extremely rare in past bull markets and further indicates that the market structure in this cycle has significantly deviated from the historical patterns and performance that investors are familiar with.

Review of Losses

After experiencing a significant drop like this week, it is particularly important to examine investors' reactions, especially in the context where bear markets are often triggered by rising panic and large-scale losses.

By assessing the realized losses within a rolling 6-hour window, we can better understand the behavior and emotional responses of market participants during the current downturn.

Bitcoin investors have experienced a large-scale "capitulation sell-off," with a peak realized loss of $240 million within a single 6-hour window, nearing one of the largest loss events in this cycle.

However, with each price dip, the scale of realized losses is gradually shrinking, indicating that within the current price range, the market may be showing signs of short-term exhaustion of selling pressure.

Ethereum has also exhibited a similar behavioral pattern, with its single realized loss peak reaching $564 million during this downturn, becoming one of the largest sell-off events since the start of the bull market in January 2023.

As prices gradually dip, the realized loss magnitude for both Bitcoin and Ethereum is weakening, which may indicate that investors are gradually adapting to the lower price range and the current turbulent market environment.

Market Widespread Contraction

The ongoing tightening of market liquidity has triggered a significant depreciation across the entire altcoin sector. Assets further out on the risk curve are particularly sensitive to liquidity shocks, often accompanied by more severe price pullbacks.

As of December 2024, the overall market capitalization of altcoins (excluding Bitcoin, Ethereum, and stablecoins) reached a peak of $1 trillion during this cycle. Since then, the market capitalization has significantly retracted, currently down to $583 billion, with a decline of over 40% in just a few months.

It is noteworthy that during this round of correction, the various sub-sectors of altcoins have not shown significant differentiated trends. The overall decline is widespread, with all sub-sectors experiencing significant depreciation, and even Bitcoin has recorded negative returns over the past three months.

Range Assessment

Finally, we will assess the market's response to key technical indicators and on-chain cost ranges, which serve as reference tools to help investors make judgments and decisions in a turbulent and uncertain market environment.

Technical analysis has long been an important tool for investors, and Bitcoin investors typically focus on a set of key moving averages. Among them, the 111-day, 200-day, and 365-day moving averages (111DMA, 200DMA, 365DMA) are commonly used indicators to measure Bitcoin market momentum.

The following technical framework can be referenced for analysis:

• Bitcoin's first drop below the 111-day moving average ($93,000) marked a significant blow to market momentum, and no effective rebound attempts followed.
• After the initial drop, prices fluctuated around the 200-day moving average ($87,000), which is viewed by most technical analysts as the dividing line between bulls and bears. The market exhibited clear hesitation in this range, ultimately leading to further declines and initiating a new round of price drops.
• Recently, prices have fallen below the 365-day moving average ($76,000) for the first time since the 2021 cycle. This key momentum support level has not yet been completely lost; if it cannot hold, it may trigger further downward trends.

During the bull market's upward phase, short-term holders (STH) are typically the group that bears the majority of losses during panic sell-offs. Their behavioral and emotional changes can serve as important reference indicators for assessing the intensity of market corrections and how investors respond.

The cost basis of short-term holders (STH) has traditionally been viewed as a key reference level for judging market momentum during bull markets. Constructing a ±1 standard deviation range around this cost basis can typically serve as the upper and lower bounds for local price fluctuations.

• Short-term holder cost basis +1σ: $131,000
• Short-term holder cost basis: $93,000
• Short-term holder cost basis -1σ: $72,000

Bitcoin's first drop below the short-term holder cost basis (STH-CB) indicates that market momentum is beginning to weaken (it also fell below the 111-day moving average). Subsequently, prices rebounded below this cost line and encountered resistance, confirming a shift in investor sentiment.

Currently, Bitcoin's spot price has stabilized between the STH cost basis and its lower -1 standard deviation, forming the upper and lower boundaries of the current trading range, which is $93,000 to $72,000.

Active Realized Price and True Market Mean are another set of price models, typically located near the midpoint of Bitcoin's cycle. These two models estimate the cost basis of active participants in the market by excluding lost or long-unused supply.

Statistically, in about 50% of trading days, spot prices fluctuate above or below these two models, making them important references for mean reversion and for delineating the market state boundaries between bull and bear markets.

• Active Realized Price: $71,000
• True Market Mean: $65,000

Consensus among multiple on-chain price models indicates that the $65,000 to $71,000 range is a key area for bulls to establish long-term support. If prices effectively fall below this range, it would mean that the vast majority of active investors are in a state of unrealized losses, which could significantly impact overall market sentiment.

Conclusion

Due to the increasing uncertainty surrounding U.S. tariff policies, pressure on global financial markets continues to rise. This weak trend has spread to almost all asset classes, as evidenced by the significant pullbacks in major macro indices.

The digital asset market has also not escaped, with all sub-sectors experiencing widespread contraction. Bitcoin's price once dipped to $75,000, marking one of the largest pullbacks since the start of the bull market in January 2023. Ethereum's decline has been even more severe, with many long-tail crypto assets currently deeply entrenched in a bear market trend.

Combining various on-chain and technical price model analyses, the $65,000 to $71,000 range is viewed as a key area for bulls to rebuild long-term support. If Bitcoin's price falls below this range, market sentiment may suffer a significant blow, as the vast majority of active investors will be in a state of unrealized losses.