Cryptocurrency Market Suffers Extreme Volatility Amid Policy Uncertainty Caused by Trump Administration

Since the inauguration of U.S. President Donald Trump, the cryptocurrency market has been suffering from extreme volatility. The cryptocurrency market is facing a more unpredictable period than ever as the original U.S.-China technology hegemony competition and geopolitical risks overlap with the policy uncertainty caused by the Trump administration's unexpected actions.

The cryptocurrency market has been experiencing extreme volatility since the inauguration of U.S. President Donald Trump. This volatility is being caused by a combination of factors, including the ongoing U.S.-China technology hegemony competition, geopolitical risks and the policy uncertainty created by the Trump administration's unexpected actions.

One of the most significant events that impacted the cryptocurrency market in February was Trump's decision to impose tariffs on Canada, Mexico and China. This move sparked concerns about global trade tensions and inflation within the United States, leading to a decline in risky assets, including cryptocurrencies.

As a result of this high volatility, market liquidity has decreased substantially. This is making it difficult for investors to quickly enter or exit positions, and it is also putting pressure on the cryptocurrency derivatives market. According to data from CoinGlass, a cryptocurrency on-chain data site, about $1 billion worth of cryptocurrency derivatives were liquidated in just one day during a recent period of volatility.

However, industry experts believe that the actual amount of liquidation that occurred is much larger than the figures reported by data aggregation sites. For example, Ben Zhou, CEO of global cryptocurrency exchange Bybit, estimates that the total amount of cryptocurrency liquidation that occurred before and after the U.S.-triggered tariff war alone reached $8 billion to $10 billion.

Such large-scale liquidations have the effect of evaporating the liquidity of the cryptocurrency market, especially the funds to purchase altcoins. Even during the bankruptcy of the FTX exchange in 2022, over $1 billion in liquidation occurred in the Bitcoin futures market in a single day. Following this event, the cryptocurrency market remained in a lull for several months.

Adding to the challenges, the U.S. Federal Reserve has expressed its intention to maintain high benchmark interest rates for the time being. This makes it unlikely that the cryptocurrency market will experience a rise due to increased liquidity in the near future.

Another factor that is impacting the cryptocurrency market is the delay in the U.S. government's process of making Bitcoin a strategic reserve asset. This move, which was highly anticipated by cryptocurrency investors, would have seen Bitcoin being incorporated into the U.S. government's reserves, alongside gold and other precious metals.

During a press conference on February 5, David Sax, the former chief operating officer of PayPal who was appointed as the White House's "Crypto Char," was asked about the timeline for bitcoin's strategic reserve assetization. In response, Sax stated that the White House working group is reviewing the feasibility of this measure.

This response, which fell short of the market sentiment that expected Bitcoin to be designated as a reserve asset upon Trump's inauguration, poured cold water on investors' expectations and further increased market uncertainty.

Considering all of these factors, the cryptocurrency market in February 2025 is not expected to find short-term upward momentum for the time being. Some potential favorable factors that could still emerge include the incorporation of Bitcoin by the US sovereign wealth fund, the conclusion of the Ukraine-Russia war and the easing of cryptocurrency regulations in major countries. However, these developments are unlikely to yield tangible results in a short period of time.

Overall, liquidity is decreasing, and if bitcoin prices fail to recapture the $100,000 mark and go sideways for a long time, additional adjustments may occur in the altcoin market. Considering the evaporated investment due to a series of large liquidations in the derivatives market, altcoins that are heavily affected by liquidity, such as meme coins and AI coins, need to be wary of the possibility of overselling.

Despite the challenges, there is also a possibility for a breakthrough liquidity supply to occur in the cryptocurrency market. One potential development that could lead to this outcome is the activation of stablecoins, which was mentioned by David Sax during his briefing on the Trump administration's key policies in the digital assets sector.

For now, it is interpreted that the activation of stablecoins will be a priority rather than the strategic reserve assetization of Bitcoin. The Republican Party, which has a majority in the federal parliament, has already proposed a regulation that would allow non-bank events to issue stablecoins, even if they are not necessarily banks.

It is not yet clear what bill will finally be passed, but for now, big tech companies in Silicon Valley are also in a mood to be allowed to issue stablecoins.

As a result, there is a high possibility that the dollar stablecoin ecosystem will be organized and the number of companies issuing it will increase as early as the second half of this year. Dollar stablecoins are cryptocurrency whose value is linked to the U.S. dollar one-on-one. It is often issued as collateral for U.S. government bonds. In other words, an increase in the circulation of dollar stablecoins will naturally expand the demand for U.S. government bonds and ultimately contribute to strengthening dollar hegemony that the Trump administration wants.

As a result, if the Trump administration increases the amount of stablecoins issued,