Yesterday, Monday the 7th of April, marked a dark day for the cryptocurrency markets. At the start of the week, almost every cryptocurrency experienced a sharp fall, ranging from 10 to 15% for the most heavily traded cryptos such as Bitcoin, Ethereum and Solana. Considered to be the strongest cryptos, their significant drop caused a sudden change in the “Fear & Greed” crypto index, an index that defines investor psychology in real time. This index stands at 24/100 today, pointing to extreme market fear regarding investment in cryptocurrencies.
Behind this unexpected fall lies a political announcement with far-reaching economic consequences. An announcement made by the US government that had an immediate impact on the global economy. We’re talking about the recent statements by US President Donald Trump, in which he announced that he was considering raising trade taxes with China by up to 50%.
Competitors in economic terms but not only, geopolitical tensions between the two giants escalated in the wake of this announcement, with immediate consequences for all the world’s financial markets.
Investors are very careful
It’s worth remembering that for some months now, investors have not been very confident about the state of the economic and financial markets. Between persistent inflation, high interest rates and geopolitical tensions, investors see Donald Trump’s announcement as a threat to global economic growth. As a result, they are increasingly turning to safe-haven assets such as gold and bonds.
The impact on cryptocurrency prices
Cryptocurrencies, considered volatile investments and high-risk assets, are less sought after during such periods.
The result? A massive sell-off in cryptocurrencies, in anticipation of the lasting price decline that the trade “war” between the USA and China may generate.
Whether institutional or retail investors, the concerned audience is considering consolidating their asset portfolios by adopting an approach that limits the risks associated with volatile assets such as cryptocurrencies.
This massive sell-off is not the only consequence; it also leads to other problems, such as stop-losses. In the cryptocurrency market, many investors use automatic mechanisms to limit their losses. These are programmable actions to automatically sell assets as soon as they reach a certain critical threshold. These can be set by individuals or by portfolio managers.
Severe direct and indirect consequences
The direct consequences have not gone unnoticed. In the space of 24 hours, the cryptocurrency market recorded a historic fall of tens of billions of dollars, an estimate that continues to grow at the moment. Beyond the visible consequences, the general public can now notice the vulnerability of crypto-currencies to geopolitical tensions. This vulnerability will enable portfolio managers, as well as individuals, to adjust their investment strategies, which may explain the lower inclusion of crypto-currencies in many types of portfolios.
It is essential to mention that risk management is a very important asset in navigating this crisis. Portfolio managers and individuals with an effective risk management strategy can limit the consequences and financial losses.
The sharp fall in cryptocurrencies on Monday reminds investors that these assets are exposed to extreme volatility, particularly when faced with geopolitical tensions of this magnitude. The next few days will therefore be crucial in assessing the sector’s resilience in the face of global turbulence.
