Original Title: Tariffs and Turmoil
Original Author: UkuriaOC, CryptoVizArt, glassnode
Translated by: Daisy, ChainCatcher
The Trump administration's announcement of "Liberation Day" tariff policy led to severe fluctuations in financial markets, with major macro indices generally declining, and the digital asset market was not spared, experiencing a comprehensive downturn.
Summary
- The news of U.S. tariff increases severely disrupted global major financial markets, with many markets experiencing one of their worst trading days since March 2020.
- Capital inflows into digital assets almost stalled, with liquidity significantly contracting and bringing strong downward pressure.
- However, from the price trends of BTC and ETH, as prices declined, the scale of loss-taking gradually reduced, which may indicate that selling pressure in the market is being exhausted in the short term.
- The decline in the entire digital asset market was widespread. The market capitalization of Altcoins dropped from $1 trillion in December 2024 to $583 billion currently.
- Comprehensive analysis of on-chain and technical models shows that to regain upward momentum, BTC must reclaim the $93,000 level. The key support zone between $65,000 and $71,000 is what the bulls must defend.
Comprehensive Market Decline
The Trump administration's announcement of "Liberation Day" tariff policy triggered severe market volatility, with major stock indices generally declining. The U.S. policy stance has shifted towards promoting a weaker dollar, interest rate cuts, oil price decline, and fiscal spending contraction. These factors combined may lead to a significant economic slowdown in the U.S. and trigger a substantial liquidity contraction.
The uncertainty brought by tariffs became the trigger for increased "risk-averse" sentiment in the market, sparking massive sell-offs, with many major financial indices recording their worst performance since March 2020.
Source: Yahoo Finance
The digital asset market is particularly sensitive to global liquidity changes and was not spared in this downturn, with many crypto assets experiencing double-digit percentage declines.
As the dominant asset, BTC's price dropped from $83,500 to $74,500, with a market value evaporation of approximately $150 billion.
As the second-largest crypto asset, ETH experienced an even more severe decline, with its price falling from $1,800 to $1,380, reducing its market value by about $40 billion.
Since the beginning of the year, net capital inflows for these two major crypto assets have significantly decreased. This trend is mainly reflected in the 30-day "Realized Market Cap" changes, which measure the monthly net capital flow of assets.
- BTC's monthly capital inflow peak reached $100 billion, now contracted to around $6 billion;
- ETH's monthly capital inflow peak was $15.5 billion, which has now turned into a net outflow of $6 billion.
The capital inflow into the BTC network is gradually stalling, indicating a lack of new incremental funds to support higher prices. ETH's capital outflow is primarily due to high-position ETH being spent at lower prices, realizing capital losses. This also suggests that ETH currently faces greater resistance and performs relatively weaker compared to BTC.
If we observe the overall changes in the "Realized Market Cap" of BTC and ETH since the FTX collapse at the end of 2022, we can quantify the capital absorbed by these two assets since their cycle low point.
- BTC's Realized Market Cap grew from $402 billion to $870 billion, an increase of $468 billion, a growth of 117%;
- ETH's Realized Market Cap grew from $183 billion to $244 billion, an increase of $61 billion, a growth of 32%.
The difference in capital inflows partly explains the market performance divergence of these two assets since 2023. ETH attracted significantly less capital and new demand in this cycle, leading to relatively weaker price appreciation and failing to create new highs, while BTC broke through the $100,000 mark in December 2024.
The MVRV ratio is used to measure the relationship between spot price and realized price, reflecting the average unrealized profit or loss for each asset holder. When the MVRV ratio is above 1, it indicates an average unrealized profit state; below 1 suggests an unrealized loss state.
Since the bull market started in January 2023, the MVRV ratios of BTC and ETH have again shown a significant divergence. BTC investors have consistently maintained higher unrealized profits, while ETH's MVRV ratio fell below 1.0 in March this year, indicating that most token holders have entered the loss zone.
By calculating the difference between BTC and ETH MVRV ratios, we can identify periods when, on average, BTC holders' book gains are superior or inferior to ETH holders'.
- A positive difference indicates that BTC investors have higher average unrealized profits than ETH investors;
- A negative difference suggests that ETH investors have stronger average profitability.
As mentioned earlier, since the start of this bull market, BTC investors' average profit levels have consistently been higher than ETH investors'.
To date, this trend has continued for 812 days, creating the longest recorded continuous period.
It can be seen that ETH's performance in this cycle is relatively weak, mainly due to significantly smaller capital and investment demand inflows compared to BTC. The divergence between the two can be further illustrated by the ETH/BTC price ratio.
Since the "Merge" upgrade in September 2022, the ETH/BTC exchange rate has dropped dramatically 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 3,531 trading days having a lower ratio than the current level.
Moreover, in this bull market, there has been almost no phase where ETH consistently outperforms BTC, which is extremely rare in past bull markets and further demonstrates that the market structure in this cycle has significantly deviated from the historical patterns and performance modes investors are familiar with.
Loss Review
After experiencing a significant decline 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 massive losses.
By evaluating realized losses within a 6-hour rolling window, we can better understand market participants' behavior and emotional responses during this downturn.
BTC investors' "capitulation selling" event was large-scale, with loss peaks reaching $240 million in a single 6-hour window, close to one of the largest loss events in this cycle.
However, as prices continue to explore lower levels, the scale of realized losses is gradually shrinking, indicating that the market may be experiencing short-term selling pressure exhaustion at the current price range.
ETH shows a similar behavior pattern. During this downturn, its single realized loss peak reached $564 million, becoming one of the largest selling events since the bull market started in January 2023.
As prices gradually decline, the realized loss extent of both BTC and ETH is weakening, which may indicate that investors are gradually adapting to lower price ranges and the current volatile market environment.
Market-wide Contraction
The ongoing tightening of current market liquidity has triggered a significant devaluation across the entire Altcoin sector. Assets at the far end of the risk curve are particularly sensitive to liquidity shocks, typically accompanied by more severe price retracements.
As of December 2024, the overall market capitalization of Altcoins (excluding Bitcoin, Ethereum, and stablecoins) reached a peak of $1 trillion in this cycle. Since then, market cap has significantly pulled back, currently dropping to $58.3 billion, with a decline of over 40% in just a few months.
Notably, in this current correction, Altcoin sub-sectors have not demonstrated notably differentiated trends. The overall decline is widespread, with all sub-sectors experiencing significant devaluation, and Bitcoin has even recorded negative returns over the past three months.
Interval Assessment
Finally, we will evaluate the market's response to key technical indicators and on-chain cost intervals, which can help investors make judgments and decisions in a volatile and uncertain market environment.
Technical analysis has long been an important tool for investors, with Bitcoin investors typically focusing on a set of key moving averages. The 111-day, 200-day, and 365-day moving averages (111DMA, 200DMA, 365DMA) are commonly used indicators for measuring Bitcoin market momentum.
The following technical framework can be referenced for analysis:
- Bitcoin's first drop below the 111-day moving average ($93,000) signaled a major blow to market momentum, with no subsequent effective rebound attempts.
- After the initial decline, prices oscillated around the 200-day moving average ($87,000), which most technical analysts view as the bull-bear demarcation line. The market showed clear hesitation in this interval, ultimately leading to another downturn and initiating a new price decline.
- Recently, prices dropped below the 365-day moving average ($76,000) for the first time since the 2021 cycle. This critical momentum support level has not yet been completely breached, but failure to maintain stability could trigger further downward trends.
During bull market phases, short-term holders (STH) are typically the group bearing the main losses in panic selling. Changes in their behavior and sentiment can serve as important reference indicators for assessing the intensity of market corrections and investor responses.
The short-term holders' (STH) cost basis has historically been considered a key reference level for judging market momentum during bull markets. Constructing a ±1 standard deviation interval around this cost basis can typically serve as the upper and lower bounds of local price fluctuations.
- Short-term Holders Cost Basis +1σ: $131,000
- Short-term Holders Cost Basis: $93,000
- Short-term Holders Cost Basis -1σ: $72,000
Bitcoin's first drop below the short-term holders' cost basis (STH-CB) signaled the beginning of weakening market momentum (while also dropping below the 111-day moving average). Subsequent price rebounds encountered resistance below this cost line, confirming a shift in investor sentiment.
Currently, BTC spot prices have stabilized between the STH cost basis and its lower -1 standard deviation, forming the current trading interval's upper and lower boundaries, namely $93,000 to $72,000.
The Active Realized Price and True Market Mean are another set of price models, typically located near the midpoint of the Bitcoin cycle. These models estimate the cost basis of active market participants by eliminating lost or long-term unused supplies.
Statistically, spot prices fluctuate above or below these two models on approximately 50% of trading days, thus serving as important mean reversion references and helping define the market state boundaries between bull and bear markets.
- Active Realized Price: $71,000
- True Market Mean: $65,000
The consensus of multiple on-chain price models indicates that the $65,000 to $71,000 interval is a critical area for bulls to establish long-term support. If prices effectively break below this interval, it would mean that the vast majority of active investors are in a state of floating losses, potentially significantly impacting overall market sentiment.
Conclusion
Influenced by increasing uncertainty in U.S. tariff policies, global financial market pressure continues to rise. This weak trend has spread to almost all asset classes, as evident from the significant pullback in major macro indices.
The digital asset market is no exception, with a comprehensive contraction across all sub-sectors. Bitcoin prices once dropped to $75,000, marking one of the largest retracements since the bull market started in January 2023. Ethereum's decline was even more severe, with many long-tail crypto assets now deeply entrenched in a bear market trend.
Combining various on-chain and technical price models, the $65,000 to $71,000 interval is considered a critical area for bulls to rebuild long-term support. If BTC prices break below this interval, market sentiment could suffer a significant blow, as the vast majority of active investors' positions would be in a state of floating losses.
