Escalation of U.S.-Led Protectionism in 2025: Impacts on Global Markets and Cryptocurrency
In 2025, the surge in U.S.-driven protectionism has reached its highest point since the Great Depression. With Donald Trump resuming the presidency in January, a series of substantial tariffs have disrupted global markets, sparking renewed fears of an escalating trade war.
The Revival of High Tariffs and Its Historical Parallel
On April 2, following the closure of trading, President Trump unveiled a fresh wave of tariffs, propelling U.S. import taxes to heights reminiscent of those during the Great Depression. These tariffs mirror the levels established by the contentious Smoot-Hawley Tariff Act of the 1930s.
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The Cryptocurrency Market Faces a Significant Downturn
According to recent insights from Binance Research shared on April 7, the cryptocurrency market has suffered a staggering $1 trillion loss in market value since the initial U.S. tariff announcements. The total market capitalization has plunged by 25.9% compared to its peak in January.
Impact on Global Trading and Investment Sentiment
As global trade partners retaliate and investors shy away from riskier assets, the cryptocurrency sector has been hit hardest. Investor sentiment has dwindled, causing a shift of capital toward more traditional and safer investment options.
Capital Shifts from Cryptocurrency Amid Heightened Risk Aversion
The shock of the new tariffs has triggered a widespread risk-off response across financial markets. Both cryptocurrency and stock markets have entered correction territory, while traditional safe havens such as gold have experienced significant gains.
Since the initial tariff shock, the S&P 500 index has declined by 17.1%, whereas gold has surged by 10.3%, reaching successive all-time highs as investors seek shelter from the economic turmoil.
The cryptocurrency markets have faced a severe sell-off, especially in altcoins. Bitcoin (BTC) has decreased by 19.1%, but altcoins have sustained even more substantial losses.
Altcoins Suffer Greater Losses Amid Tariff-Induced Concerns
Ethereum (ETH), the second-largest digital currency, has plummeted by 44.1%. High-beta categories, including memecoins and artificial intelligence tokens, have seen drastic declines of 58.1% and 52.5%, respectively. Gaming and Layer 2 tokens have dropped approximately 50%, while DeFi tokens have fallen by 31.9%.
This extensive market downturn has wiped out gains from earlier in the year, pushing Bitcoin into negative territory despite its strong performance in 2024.
Institutional Sentiment Wanes Amid Economic Uncertainty
The cryptocurrency decline is mirrored in institutional sentiment as well. A recent Bank of America Global Fund Manager Survey reveals that only 3% of fund managers currently favor Bitcoin in the context of a trade war, compared to 58% who prefer gold.
The report further indicates a surge in volatility. Bitcoin’s one-month realized volatility has exceeded 70%, while Ethereum’s volatility spiked past 100% following the tariff announcements.
As liquidity becomes scarcer and risk aversion increases, the narrative of cryptocurrency as a hedge against economic instability is being questioned. At present, investors seem to be prioritizing the preservation of capital, with cryptocurrencies no longer at the forefront of their investment strategies.
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