Crypto Market Liquidates $2 Billion, What Were the Causes of the Sell-off?

On the last two days before the start of 2025, Bitcoin briefly fell below $92,000. The entire network saw $2.028 billion in liquidations in the past 24 hours, with long liquidations totaling $1.766 billion and short liquidations totaling $270 million. Furthermore, in the last 24 hours, a total of 700,594 people worldwide were liquidated, with the largest single liquidation occurring on Binance - ETHUSDT worth $25.635 million.

Since this year's Spring Festival holiday, Bitcoin has experienced several sharp short-term drops. The following are the market reasons for Bitcoin's decline as compiled by BlockBeats, provided for reader reference.

DeepSeek Triggers "Mini Financial Crisis"

On January 27, the domestic AI large model DeepSeek surpassed ChatGPT in download volume to top the U.S. APP Store rankings, attracting global attention and media coverage from the technology, investment, and media industries. Due to DeepSeek's performance comparable to large-scale cutting-edge models like OpenAI but with a training cost of less than $6 million, the AI industry's belief in "big spending equals great results" has been shaken. Therefore, the financial industry views it as a black swan event triggering a financial crisis.

On January 29, several U.S. officials responded to DeepSeek's impact on the U.S., stating that DeepSeek is "espionage" and launching a national security investigation into its impact. Just the day before, U.S. President Trump praised DeepSeek as a very positive technological achievement. On February 2, ARK Invest CEO Cathie Wood expressed in an interview that DeepSeek proved successful in the AI field does not require that much money and accelerated cost collapse.

Impacted by DeepSeek, NVIDIA saw a 5.3% intraday decline, the Nasdaq fell more than 400 points, and U.S. stock market capitalization evaporated nearly $1 trillion. Bitcoin and cryptocurrencies as risk assets were also impacted, with Bitcoin falling 4.4% that day. ETH fell by 3.8%. After a week of recovery, market performance remained weak, and it experienced another sharp drop at the start of this week. The future trend of the crypto market may still need further observation of U.S. stock market performance after the opening.

Trump Administration Tariffs Implemented

The tariffs promised by Trump during his presidential campaign have gradually been implemented recently. On February 2, the U.S. government announced a 25% tariff on imported goods from Canada and Mexico. The same day, President Trump signed the tariff order, imposing an additional 25% tariff on imported products from Canada and Mexico and a 10% tariff on energy resources from Canada. The tariffs are set to take effect on the 4th. The White House stated that if retaliatory tariffs are imposed on U.S. tariffs, the U.S. may increase the tariff intensity.

On the previous day, Trump signed an executive order to impose a 10% tariff on goods imported from China. The White House stated that for all goods coming from China, the U.S. would impose a 10% tariff on top of the existing tariffs. Trump said this aligns with his support for "protectionist measures."

On the 3rd day, Trump once again stated he would "definitely" impose new tariffs on the European Union. He again complained about the U.S. trade deficit with the EU and believed that the EU did not import enough U.S. cars and agricultural products. Trump did not specify the tariff rate or timetable. He told the media, "I'm not going to say there's a timetable, but it will happen very soon."

According to Bloomberg, BTC Markets CEO Caroline Bowler said, "Trump's tariff policy is affecting the entire market, with concerns about a trade war and stagflation-induced recession spreading to altcoins and the Bitcoin market." Due to the tariff news, BTC briefly fell to around $91,000, its lowest level in over two weeks. However, on the other hand, Jeff Park, Chief Strategy Officer of Bitwise Alpha, also stated that Trump's trade tariff policy will in the long term drive up the price of Bitcoin as it will lead to the weakening of the dollar in the global currency market and cause a decline in U.S. Treasury yields.

El Salvador Cancels Bitcoin's Legal Tender Status

On January 30, as reported by Cointelegraph, the Salvadoran Congress swiftly passed legislation amending its Bitcoin Law to comply with an International Monetary Fund (IMF) agreement. Ruling party legislator Elisa Rosales stated that this amendment aims to ensure the "permanence of Bitcoin as a legal tender" while promoting its "practical application."

On February 2, the Salvadoran Congress (controlled by the ruling party) quietly passed an amendment to the "Bitcoin Law," revoking Bitcoin's official currency status, making its use entirely optional. This reform was made under pressure from the International Monetary Fund (IMF) over the past two years, as a condition for approving a $1.4 billion loan, requiring the Salvadoran government to "reduce the risks of Bitcoin."

El Salvador was once the first country globally to adopt Bitcoin as a legal tender, and now it has become the first country to abandon this policy. Bitcoin in El Salvador is no longer a "currency," as the voluntary use has been modified by members of Congress amending 6 articles of the "Bitcoin Law" and repealing 3 articles (totaling 16 articles since its implementation). From now on:

· Bitcoin is no longer considered "currency," and merchants are no longer required to accept Bitcoin payments.

· Its use becomes voluntary and no longer has legal tender status.

· The government will no longer accept Bitcoin for taxes.

Although the ruling party reluctantly accepted this modification, they did not publicize it widely. Despite President Bukele being very active on social media, he has not yet commented on this. However, on-chain data shows that El Salvador is still accumulating Bitcoin. On February 1st, El Salvador added 5 BTC to its holdings in the past 24 hours, bringing the total to 6,055.18 BTC, worth $618,113,096. Previously, on January 20th, El Salvador added 11 BTC ($1,113,508). Additionally, on January 14th, according to Bitcoin Magazine, El Salvador's Senior Bitcoin Advisor Max Keiser revealed that President Bukele is preparing to install a Bitcoin node in every household in the country.

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