The cryptocurrency market recently experienced a sharp downturn, with over $2.028 billion** in total liquidations recorded in just 24 hours. Of this, long positions accounted for **$1.766 billion, while short positions made up the remaining $270 million**. At one point, Bitcoin briefly dipped below **$92,000, marking its lowest level in more than two weeks. Nearly 700,600 traders were liquidated during this period, with the largest single liquidation occurring on Binance — an ETHUSDT position worth $25.6 million.
While Bitcoin has seen repeated short-term plunges since the Chinese New Year holiday, several macroeconomic and geopolitical factors have contributed to this latest wave of volatility. Below is a detailed breakdown of the key reasons behind the recent crypto market correction.
DeepSeek Sparks a "Mini Financial Crisis" in Tech and Markets
On January 27, 2025, the Chinese AI model DeepSeek made headlines worldwide after surpassing ChatGPT in downloads on the U.S. Apple App Store. What set DeepSeek apart wasn't just its popularity — it demonstrated performance comparable to OpenAI’s multi-billion-dollar models, yet was trained for under $6 million. This dramatic cost efficiency challenged the prevailing belief in the AI industry that “bigger budgets equal better results,” shaking investor confidence across tech sectors.
The implications were immediate. On January 29, U.S. officials responded with concern, labeling DeepSeek a potential national security risk and launching investigations into its origins and data practices. Interestingly, just one day prior, former President Trump had praised the model as a “remarkable technological achievement.”
By February 2, ARK Invest CEO Cathie Wood reinforced the narrative, stating that DeepSeek exemplified how innovation in AI no longer requires massive capital — accelerating what she called a “cost collapse” in artificial intelligence development.
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Financial markets reacted swiftly. NVIDIA shares dropped 5.3%, the Nasdaq lost over 400 points, and U.S. equity valuations erased nearly $1 trillion in value. As risk assets, cryptocurrencies followed suit — Bitcoin fell 4.4% and Ethereum dropped 3.8% on that day alone.
Even after a brief recovery, market sentiment remained fragile. The ripple effects from this technological disruption helped set the stage for further declines later in the week, especially as Wall Street awaited new signals from broader equities once trading resumed.
Trump Administration Imposes New Global Tariffs
Another major factor influencing market sentiment was the rollout of aggressive trade policies by the Trump administration. Long-promised during his campaign, these tariffs began taking effect in early February 2025.
On February 2, the U.S. government announced a 25% tariff on imports from Canada and Mexico, with an additional 10% levy on Canadian energy resources. The measures were set to take effect within days, with White House officials warning that retaliatory actions could lead to even higher duties.
Just a day earlier, Trump signed an executive order imposing a 10% tariff on all goods imported from China, layered on top of existing duties. He defended the move as part of his broader protectionist economic agenda, aimed at reshoring manufacturing and reducing trade deficits.
Then on February 3, Trump signaled plans to extend similar tariffs to the European Union, citing persistent trade imbalances — particularly in automotive and agricultural sectors — though specific rates and timelines were not disclosed.
These developments heightened fears of a renewed global trade war, raising concerns about inflationary pressures and potential economic stagnation. According to Caroline Bowler, CEO of BTC Markets:
“Trump’s tariff policies are sending shockwaves across markets. Fears of stagflation and global trade tensions are now spilling over into both altcoins and Bitcoin.”
Bitcoin briefly dipped to around $91,000, its weakest level since mid-January. However, not all analysts see this as purely negative.
Jeff Park, Alpha Strategy Head at Bitwise, offered a contrarian view: “In the long run, protectionist policies may actually boost Bitcoin’s appeal. As the dollar weakens globally and Treasury yields decline due to reduced foreign demand, Bitcoin becomes a more attractive alternative store of value.”
El Salvador Removes Bitcoin as Legal Tender
One of the most symbolic blows came from El Salvador, once hailed as a pioneer in national Bitcoin adoption.
On January 30, Cointelegraph reported that El Salvador’s Congress had quietly passed amendments to its original Bitcoin Law, aligning with conditions set by the International Monetary Fund (IMF) for a $1.4 billion loan package. The IMF had long urged the country to mitigate financial risks associated with Bitcoin’s volatility.
By February 2, the ruling party formally enacted changes that effectively ended Bitcoin’s status as official legal tender. Key revisions included:
- Bitcoin is no longer considered “currency” by the state.
- Businesses are no longer required to accept Bitcoin payments.
- The government will no longer collect taxes in Bitcoin.
- Use of Bitcoin is now entirely voluntary.
Six clauses were revised and three were repealed from the original 16-clause law. This marks El Salvador as both the first country to adopt Bitcoin as legal tender — and now, the first to roll it back.
Despite this policy reversal, on-chain data shows the government continues to accumulate Bitcoin. On February 1, El Salvador added 5 BTC to its reserves, bringing its total holdings to 6,055.18 BTC, valued at approximately $618 million. Earlier purchases included 11 BTC on January 20, and reports from Bitcoin Magazine indicated that President Bukele was planning to install a Bitcoin node in every household across the country.
Notably, President Bukele — typically active on social media — has not commented publicly on the legislative change.
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Frequently Asked Questions (FAQ)
Q: What caused the $2 billion crypto liquidation event?
A: A combination of macroeconomic shocks — including AI-driven tech sell-offs, new U.S. tariffs reigniting trade war fears, and El Salvador reversing its Bitcoin legal tender policy — triggered widespread risk-off behavior among investors.
Q: Is Bitcoin still considered money in El Salvador?
A: No. As of February 2, 2025, Bitcoin is no longer recognized as legal tender. Its use is now optional for individuals and businesses.
Q: Did El Salvador sell any Bitcoin during this policy change?
A: No evidence suggests any sale. Chain data confirms ongoing accumulation, indicating continued strategic confidence despite regulatory rollback.
Q: How do U.S. tariffs affect cryptocurrency prices?
A: Tariffs can weaken global trade sentiment, increase inflation risks, and reduce liquidity — all of which pressure risk assets like crypto. However, long-term dollar depreciation from such policies may enhance Bitcoin’s appeal as a hedge.
Q: Was DeepSeek really responsible for market declines?
A: While not the sole cause, DeepSeek’s emergence disrupted AI investment narratives, leading to a tech stock selloff that spilled over into crypto markets due to their high correlation as speculative assets.
Q: Could this downturn be a buying opportunity?
A: Many analysts believe so. With institutional accumulation continuing and macro pressures likely temporary, some see this dip as a consolidation phase before the next upward cycle.
The recent market correction reflects how deeply interconnected digital assets are with global economic narratives — from AI breakthroughs to trade wars and sovereign policy shifts.
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While short-term volatility persists, the underlying adoption trends — including national accumulation and infrastructure development — suggest that Bitcoin’s long-term trajectory remains intact. Investors are advised to focus on fundamentals, manage leverage carefully, and stay informed amid rapidly evolving conditions.