In the final days before the 2025 workweek began, the cryptocurrency market faced a sharp downturn. Bitcoin briefly dropped below $92,000, triggering over **$2.028 billion in total liquidations across global exchanges in just 24 hours. Of this, $1.766 billion came from long positions**, while short liquidations accounted for $270 million. Approximately 700,594 traders were liquidated, with the largest single position—worth $25.6 million in ETHUSDT—occurring on Binance.
Since the Chinese New Year holiday, Bitcoin has repeatedly experienced sudden price drops. Below is an analysis of the key market-driven factors behind this recent crypto downturn, offering insights into the forces shaping digital asset volatility.
DeepSeek Sparks a "Mini Financial Crisis" in Tech and Markets
On January 27, 2025, DeepSeek, a Chinese-developed AI large language model, surged past ChatGPT to become the top-downloaded app on the U.S. App Store. This unexpected rise captured global attention across tech, investment, and media circles. What made DeepSeek particularly disruptive was its performance: comparable to high-cost models like those from OpenAI, yet trained for less than $6 million—a fraction of typical AI development budgets.
This cost-efficiency challenged the prevailing belief in the AI industry that success requires massive capital investment—"brute force computing" at scale. Financial markets interpreted this shift as a potential black swan event, destabilizing assumptions about AI's future profitability and infrastructure demand.
By January 29, U.S. officials began responding, with several calling DeepSeek a case of intellectual property "theft" and launching national security reviews. Just a day earlier, former President Trump had praised the technology as a positive innovation—highlighting the political and strategic tensions surrounding emerging AI capabilities.
On February 2, Cathie Wood, CEO of ARK Invest, reinforced DeepSeek’s significance by stating it proved AI breakthroughs don’t require massive spending and would accelerate a cost collapse in AI infrastructure.
👉 Discover how AI disruptions are reshaping digital asset markets
The market reaction was swift:
- NVIDIA stock fell 5.3%
- The Nasdaq dropped over 400 points
- U.S. equity markets lost nearly $1 trillion in value
As risk assets, both Bitcoin and Ethereum followed suit:
- BTC dropped 4.4%
- ETH declined 3.8%
Even after a week of recovery attempts, sentiment remained fragile. A fresh sell-off emerged on Monday, underscoring how tightly crypto markets are now linked to broader tech and macroeconomic trends—especially ahead of U.S. market reopenings.
Trump Administration Imposes New Global Tariffs
Long-promised during his campaign, former President Trump’s aggressive trade policies have begun taking effect. On February 2, his administration announced a 25% tariff on imports from Canada and Mexico, with an additional 10% duty on Canadian energy resources. The measures were set to take effect within four days, with warnings that retaliatory actions could lead to even higher tariffs.
Just one day prior, Trump signed an executive order imposing a 10% tariff on all goods imported from China, adding to existing duties. The White House framed this as part of a broader protectionist economic agenda, aiming to rebalance trade deficits and protect domestic industries.
Then on February 3, Trump signaled further escalation, stating he would “definitely” impose new tariffs on the European Union, citing persistent trade imbalances—particularly in automotive and agricultural sectors—though no specific timeline or rates were provided.
These developments sent shockwaves through financial markets:
“Trump’s tariff policies are impacting investor sentiment across asset classes,” said Caroline Bowler, CEO of BTC Markets. “Fears of trade wars and stagflation are spilling over into both altcoins and Bitcoin.”
Bitcoin briefly dipped to around $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 protectionist policies could ultimately strengthen Bitcoin’s value proposition over time. By weakening the U.S. dollar’s global standing and reducing Treasury yields, tariffs may increase demand for decentralized, scarce digital assets as hedges against currency devaluation.
El Salvador Quietly Ends Bitcoin’s Legal Tender Status
In a move that surprised many in the crypto community, El Salvador quietly amended its landmark Bitcoin Law on February 2. The country’s legislature—controlled by President Nayib Bukele’s party—passed revisions that effectively removed Bitcoin’s status as legal tender.
This change came after nearly two years of pressure from the International Monetary Fund (IMF), which tied approval of a $1.4 billion loan package to El Salvador addressing Bitcoin-related financial risks.
While initial reports suggested the reform aimed to “ensure the permanence” of Bitcoin as legal money, the final amendments told a different story:
- Bitcoin is no longer considered legal currency
- Businesses are no longer required to accept BTC payments
- The government will no longer collect taxes in Bitcoin
- Use of Bitcoin is now entirely voluntary
Six sections of the original law were revised, and three were repealed outright—marking a significant retreat from the bold experiment launched in 2021 when El Salvador became the first country to adopt Bitcoin as legal tender.
Despite this policy reversal, on-chain data reveals a contradictory trend: El Salvador continues to accumulate Bitcoin.
- On February 1: Purchased 5 BTC (~$509,000), bringing total holdings to **6,055.18 BTC**, valued at over **$618 million**
- On January 20: Added 11 BTC (~$1.1 million)
- Earlier in January: Max Keiser, senior Bitcoin advisor to President Bukele, revealed plans to install a Bitcoin node in every household
The government has not publicly commented on the legislative change—unusual given Bukele’s active social media presence—leaving many to speculate about internal political or economic pressures.
Frequently Asked Questions (FAQ)
Q: What caused the $2 billion crypto liquidation event?
A: A combination of macroeconomic shocks—including AI-driven tech sell-offs, new U.S. tariffs, and policy reversals in El Salvador—triggered widespread margin calls and leveraged position collapses.
Q: Is Bitcoin still legal tender in El Salvador?
A: No. As of February 2, 2025, Bitcoin is no longer legal tender. Its use is now optional for individuals and businesses.
Q: Did El Salvador sell any Bitcoin during the policy change?
A: No evidence suggests sales occurred. In fact, chain data shows El Salvador has been consistently buying BTC since January.
Q: How do U.S. tariffs affect cryptocurrency prices?
A: Tariffs can weaken the U.S. dollar and reduce foreign demand for Treasuries, potentially increasing interest in hard assets like Bitcoin as inflation hedges.
Q: Was DeepSeek really responsible for market declines?
A: While not the sole cause, DeepSeek’s emergence disrupted expectations about AI profitability and semiconductor demand—key drivers behind recent tech valuations—leading to correlated sell-offs in risk assets like crypto.
Q: Could this downturn signal a longer bear market?
A: Not necessarily. Short-term volatility remains high due to leverage and sentiment shifts, but structural demand for digital assets persists amid macro uncertainty.
👉 See how geopolitical shifts influence crypto market dynamics
The recent turbulence highlights how interconnected today’s financial systems have become. Crypto markets no longer move in isolation—they react to changes in AI innovation, trade policy, and national monetary experiments alike.
Understanding these cross-market forces is essential for navigating volatility and identifying long-term opportunities—even amid $2 billion liquidation storms.
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