Bitcoin Plunges to $91K Today: A Closer Look at the Events Behind the Drop

Bitcoin falls 10% intraday

Bitcoin's price took a dive today (03-Feb-2025) to US $91,057, a drop that left the market scrambling. Here's a breakdown of the events that might have contributed to this dramatic plunge.

• New trade tariffs announced by Trump have created uncertainty in global markets prompting investors to shift towards safe-haven assets.

Bloomberg reported a surge in US Dollar and a forecast for falling stock markets amid these trade tensions, DXY data also confirms that the dollar's strength has increased after the confirmation of the tariffs on Friday.

• Canada, China and Mexico's retaliatory tariffs to further escalate trade tensions

In response to the US Tariffs, China and Mexico have indicated that they would retaliate, and Canada announced counter tariffs, targeting approximately C$ 155 billion US goods which is expected to further strain the long standing trade relations between the 2 nations.

This combined effect has led to a significant strengthening of the US dollar relative to other currencies and as a result, impacted Bitcoin in several ways.

• Risk-off sentiment

When geopolitical or trade tensions rise, investors tend to shift their funds into safer assets. This can lead to the selling of what is considered "riskier" investments including the likes of Bitcoin. Although Bitcoin has sometimes been viewed as a hedge, its volatility also means that in times of uncertainty, investor might choose more traditional safe havens such as gold, putting downward pressure on Bitcoin's price.

• Stronger US Dollar

A stronger US dollar makes assets priced in dollars more attractive, As Bitcoin is currently pegged to US stable coins (namely USDC and USDT) which is priced in US dollars, when the dollar surges, the appeal of Bitcoin to global investors fall, as they see more value in holding cash or dollar-denominated assets rather than a volatile crypto asset. This can contribute to lower demand and a further drop in Bitcoin prices.

• Increased Market Volatility 

The trade tensions and subsequent policy reactions contributed to a broader market uncertainty which can further lead to increase volatility across various asset classes. With many investors and algorithms set to trigger sell orders in turbulent markets, Bitcoin could face rapid sell-offs or liquidations as part of this wider market correction.

All these have created a perfect storm for Bitcoin's 10% plunge today. That being said, at the point of writing, crypto has been known to be subject to knee jerk reactions and as such, this decline may represent a temporary adjustment amid broader economic uncertainty. We will need to watch closely to see if Bitcoin can stabilize or will be subject to larger volatility as the situation develops.