Market Wrap: Monday, February 3, 2025

Trump-related market volatility has returned, echoing fluctuations seen during his first term. Markets opened softer for the second consecutive week as Europe reacted to news of 25% tariffs on Mexico and Canada, along with a 10% tariff on China.  

With crypto markets being the only tradable asset class over the weekend, they initially absorbed much of the impact, with Bitcoin dropping below $92,000. Traditional markets opened lower, and the U.S. dollar strengthened on the Wellington open. Adding to the tension, Trump hinted that Europe could be next in line for tariffs, pushing the EUR-USD to trade near the 1.02 level. 

By Monday afternoon, however, sentiment shifted when headlines revealed that Mexican tariffs would be delayed by a month as both countries entered negotiations, with Mexico pledging to deploy 10,000 national guard members to its northern border. Meanwhile, Canadian Prime Minister Justin Trudeau announced retaliatory tariffs against the U.S., signaling a firm stance as tensions escalate.   

Crypto markets experienced a massive $1.7bn worth of liquidations clearing out the frothy sentiment that had built up since the November election. While crypto took a hit alongside traditional assets, it’s important to highlight Bitcoin’s unique potential as an inflation hedge and safe haven during periods of geopolitical or financial market stress. This attribute has allowed Bitcoin to maintain a lower correlation with stocks over time, reinforcing its resilience and performance across different market conditions. 

In other news, Utah could become the first U.S. state to establish a Bitcoin reserve. So far, 15 states have proposed plans to implement a state-level Bitcoin reserve. Meanwhile, in Europe, the governor of the Czech National Bank recently suggesting allocating up to 5% of its reserves to BTC. However, the proposal was quickly shot down by ECB President Christine Lagarde, citing Bitcoin’s failure to meet the liquidity, safety, and security standards required for reserve assets.  

The contrast between U.S. and European approaches is striking, but it’s important to note that the U.S. Federal Reserve isn’t pursuing the legal changes needed to allow Bitcoin on its balance sheet either. As Fed Chair Jerome Powell recently stated, the Fed cannot hold Bitcoin and isn’t seeking to change that. 

Lastly, we can't ignore ETH’s notable underperformance over the weekend. The BTC/ETH ratio saw a sharp spike Sunday evening into Monday morning, coinciding with tariff headlines hitting the wires. ETH dominance continues to slide, and liquidation data from Liquidations | CoinGlass shows ETH liquidations over the weekend outpacing those for BTC, hinting at more leveraged washouts in this pair. Sentiment around Ethereum remains incredibly weak, making it increasingly likely that ETH may be the asset to sell during market drawdowns.  

ETH Market Cap - Percentage Dominance Weekly 

Source: TradingView 

Ethereum Crashes By 18% Amid $2.3 Billion Crypto Liquidation Storm - Decrypt 

Ethereum News: Ether Volatility Explodes to Over 100% as ETH Price Crashes 

MicroStrategy ends weekly bitcoin buying streak, keeps total holdings at 471,107 BTC | The Block 

Trump-backed World Liberty Financial disputes allegations of 'selling tokens' to crypto teams | The Block 

Bybit CEO estimates crypto traders were liquidated for $8-10 billion in last day alone | The Block 

Crypto-friendly Treasury Secretary Scott Bessent to temporarily lead CFPB | The Block 

In the coming week, focus will be on the Bank of England's interest rate decision and Friday's US labor market data, with potential attention on any significant geopolitical developments. 

Source: Investing.com

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