The cryptocurrency market experienced a turbulent start to 2025, with over $2 billion in liquidations** within just 24 hours. Bitcoin briefly dipped below **$92,000, triggering massive margin calls across major exchanges. A total of 700,594 traders were liquidated, with long positions absorbing the brunt—$1.76 billion in losses. The largest single liquidation occurred on Binance, involving an **ETH/USDT position worth $25.6 million**.
This sharp correction wasn't isolated. It followed a series of global macroeconomic and technological shocks that shook investor confidence across risk assets. Below, we break down the core reasons behind the downturn, analyze market sentiment, and explore what’s next for digital assets.
🔹 DeepSeek AI Sparks Market Volatility
On January 27, 2025, Chinese AI model DeepSeek surged past ChatGPT to become the top-downloaded app in the U.S. App Store. The breakthrough sent shockwaves through Silicon Valley and global financial markets.
What made DeepSeek stand out was its exceptional performance at a fraction of the cost—trained for under $6 million, compared to billions spent by OpenAI and Google. This challenged the prevailing belief that AI dominance requires massive capital investment, shaking investor confidence in high-valuation tech stocks.
👉 Discover how AI breakthroughs are reshaping investment trends in 2025.
By January 29, U.S. officials began calling DeepSeek a potential national security threat, launching investigations into data sourcing and intellectual property concerns. Just a day earlier, former President Trump had praised the innovation. The mixed messaging amplified uncertainty.
ARK Invest CEO Cathie Wood weighed in on February 2, stating:
"DeepSeek proves that AI breakthroughs don’t require endless capital. We’re entering an era of cost collapse in machine learning."
The fallout was swift:
- NVIDIA stock dropped 5.3%
- Nasdaq fell over 400 points
- U.S. equity market erased nearly $1 trillion in value
As risk assets tumbled, cryptocurrencies followed. Bitcoin dropped 4.4%, while Ethereum lost 3.8%. Though markets attempted recovery, lingering anxiety set the stage for further declines.
Why Crypto Reacted So Strongly
Bitcoin and altcoins are increasingly viewed as tech-linked risk assets. When AI-driven tech stocks wobble, crypto often follows due to overlapping investor bases and sentiment drivers.
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🔹 Trump’s Tariff Policies Rattle Global Trade
On February 2, 2025, the U.S. administration under President Trump imposed a 25% tariff on imports from Canada and Mexico, with a 10% levy on Canadian energy resources. The move reignited fears of a global trade war.
Earlier, on February 1, a 10% tariff was added to all Chinese imports, building on existing duties. Trump justified the measures as part of his long-promised protectionist economic agenda.
By February 3, he signaled plans to extend tariffs to the European Union, citing trade imbalances in automotive and agricultural sectors—though no specific timeline was given.
BTC Markets CEO Caroline Bowler commented:
"Trump’s tariff policies are spreading concerns about trade wars and stagflation into crypto markets. Investors are fleeing risk."
Bitcoin reacted immediately, falling to $91,000—its lowest level in over two weeks.
However, not all analysts see long-term doom. Jeff Park, Strategy Head at Bitwise Alpha, argued:
"Tariffs may weaken the U.S. dollar and lower Treasury yields over time—both bullish for Bitcoin as a hedge against monetary devaluation."
Still, short-term panic prevailed. The fear of inflationary pressure, slower growth, and global retaliation pushed traders toward safer assets.
👉 See how geopolitical shifts influence crypto valuations today.
🔹 El Salvador Retreats on Bitcoin as Legal Tender
On January 30, news emerged that El Salvador had quietly amended its Bitcoin Law to align with International Monetary Fund (IMF) conditions for a $1.4 billion loan.
By February 2, the ruling party—controlling Congress—passed a revision that effectively removed Bitcoin’s status as legal tender.
Key changes include:
- Businesses are no longer required to accept Bitcoin payments
- Tax payments in Bitcoin are no longer accepted by the government
- Use of Bitcoin is now entirely voluntary
Six clauses were revised; three were abolished. The country remains the first to adopt—and now the first to abandon—Bitcoin as official currency.
Despite this policy reversal, on-chain data shows El Salvador is still accumulating Bitcoin:
- Purchased 5 BTC on February 1 (worth ~$510,000)
- Total holdings: 6,055.18 BTC (~$618 million)
- Earlier in January, bought 11 BTC at ~$1.1 million
Max Keiser, senior Bitcoin advisor to President Bukele, revealed plans to install a Bitcoin node in every household—suggesting continued ideological commitment despite legal retreat.
The mixed signals confused markets: Was this a surrender to IMF pressure or a strategic pivot?
Market Reaction
The downgrade in legal status dented Bitcoin’s narrative as “real money.” While adoption efforts continue domestically, the global perception took a hit—especially among institutional investors watching regulatory precedents.
🔹 What’s Next for Crypto? A Look Ahead
Despite the turbulence, several structural factors remain supportive:
- Bitcoin ETFs continue inflows
- Halving event completed in early 2024, reducing supply
- Institutional interest remains strong, especially in custody solutions
However, short-term risks persist:
- Geopolitical uncertainty
- AI disruption fears
- Monetary policy instability
Market depth has improved since previous cycles, but leverage remains high—evident in the $2 billion liquidation event. Traders who overextended during the bull run faced brutal corrections.
✅ Frequently Asked Questions (FAQ)
Q: Why did $2 billion in crypto positions get liquidated?
A: A combination of leverage, sudden price drops below key support levels (like $92K for BTC), and cascading margin calls triggered automated liquidations across exchanges.
Q: Is Bitcoin still considered legal tender in El Salvador?
A: No. As of February 2, 2025, Bitcoin is no longer mandatory for transactions. Its use is now voluntary, though the government continues to hold and accumulate BTC.
Q: How did DeepSeek AI affect cryptocurrency markets?
A: DeepSeek’s low-cost AI breakthrough rattled tech stocks like NVIDIA and the Nasdaq. Since crypto is often grouped with tech risk assets, it saw correlated selling pressure.
Q: Do U.S. tariffs impact Bitcoin prices?
A: Indirectly. Tariffs can lead to inflation, trade wars, and dollar weakness—all of which influence investor sentiment. While negative short-term, some analysts believe prolonged dollar weakness could benefit Bitcoin long-term.
Q: Was the liquidation event a sign of market collapse?
A: Not necessarily. While severe, $2 billion in liquidations reflects high leverage rather than systemic failure. Healthy markets periodically purge overleveraged positions.
Q: Should I buy Bitcoin after this dip?
A: That depends on your risk tolerance and investment horizon. Historically, sharp corrections have been followed by recoveries—especially post-halving. Always do your own research (DYOR).
Final Thoughts
The early 2025 crypto correction was driven by a rare convergence of forces: technological disruption, geopolitical tension, and regulatory reversals. While painful for leveraged traders, these events also highlight Bitcoin’s sensitivity to macro trends.
As AI evolves and trade policies shift, digital assets will continue to reflect broader financial sentiment. But with strong fundamentals—limited supply, growing adoption, and increasing institutional backing—the long-term outlook remains resilient.
👉 Stay ahead of market shifts with real-time data and secure trading tools.
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