Cryptocurrency Market Crash on February 28, 2025: A Deep Dive into Trump Tariffs, Fed Policy, and Other Factors

Cryptocurrency Market Crash on February 28, 2025: A Deep Dive into Trump Tariffs, Fed Policy, and Other FactorsOn February 28, 2025, major cryptocurrencies experienced a significant drop. Bitcoin (BTC) plunged 6

Cryptocurrency Market Crash on February 28, 2025: A Deep Dive into Trump Tariffs, Fed Policy, and Other Factors

On February 28, 2025, major cryptocurrencies experienced a significant drop. Bitcoin (BTC) plunged 6.69%, falling to $80,354.5 and briefly dipping below $80,000; Ethereum (ETH) plummeted 9.09%, breaking below $2,200; and Dogecoin (DOGE) saw a staggering 9.74% decline (data from Jinse Caijing, as of 6:00 PM Beijing time, February 28th). This dramatic volatility wasn't caused by a single factor, but rather a complex interplay of several contributing elements. This article will delve into a multi-faceted analysis of the potential causes behind this crash.

First, the Trump administration's intensified tariff policies significantly impacted global risk assets, and the cryptocurrency market was no exception. On February 27th, Trump reiterated on his social media platform, TruthSocial, that proposed tariffs on Mexico and Canada would take effect on March 4th, with China facing an additional 10% tariff. Earlier, on February 13th, Trump signed a memorandum instructing relevant departments to identify "reciprocal tariffs" with every foreign trading partner to reduce America's persistent trade deficit and address "other unfair and inequitable trade issues." Commerce Secretary Howard Lutnick further stated that reciprocal tariffs could begin as early as April 2nd. This means almost all of America's trading partners, except the UK, faced the threat of tariffs. The escalating tariff threats severely dampened global risk appetite, causing significant corrections in US and Asian stock markets, and impacting the cryptocurrency market, a high-risk asset class. This uncertainty prompted investors to seek risk aversion, leading to capital flight from the cryptocurrency market. The unpredictability and suddenness of Trump's tariff policy further exacerbated market volatility, making it difficult for investors to predict future market trends, resulting in panic selling.

Second, the rise and fall of crypto assets are closely linked to global liquidity. In 2025, with inflationary pressures rising, expectations of Fed rate cuts narrowed. The Fed's January 30th meeting paused rate cuts, keeping the federal funds rate unchanged at 4.25%-4.5%. Fed Chairman Powell reiterated that the current policy stance was significantly less accommodative than before, the economy remained strong, and there was no need for urgent policy adjustments. On February 27th, a hawkish Fed official, the President of the Cleveland Fed, stated that the current interest rate level had not yet reached a significantly restrictive level and should remain stable for some time until there was clear evidence that inflation was steadily returning to the 2% target. Market expectations were that the Fed would continue to pause rate cuts in March, with full-year rate cut expectations significantly revised downwards from last year. The relatively hawkish stance of the Fed implies a tightening of global liquidity, which is undoubtedly a negative factor for the cryptocurrency market, which relies on a loose liquidity environment. Tightening liquidity reduces the money supply in the market, lowering demand for cryptocurrencies and ultimately leading to price drops. Furthermore, the Fed's unclear regulatory stance on cryptocurrencies added to market uncertainty, further impacting investor confidence.

Third, significant outflows from Bitcoin ETFs since late February further tightened crypto asset liquidity, amplified market volatility, and led to a larger drop in major cryptocurrencies. The downward price spiral and asset outflows triggered leveraged trading liquidations, with the retail-dominated cryptocurrency market amplifying this negative feedback loop. The ETF outflows indicate that institutional investors are reducing their investment in crypto assets, further fueling market panic and causing more investors to sell off their holdings. Leveraged trading liquidations further increased downward pressure on the market, creating a vicious cycle.

Furthermore, since Trump's formal inauguration, the upward trend of crypto assets has been less pronounced than before the election. While several officials in the Trump administration supported the adoption of cryptocurrencies as reserve currencies, Fed Chairman Powell explicitly ruled out the possibility of crypto assets becoming Fed reserves during his tenure. On December 19, 2024, Chairman Powell directly dismissed the possibility of including Bitcoin as a reserve asset, stating that US law currently does not allow it, and even if it did, the Fed had no such intention. However, at the January 30th meeting, he also mentioned that US commercial banks "are perfectly capable of serving cryptocurrency customers as long as they understand and can manage the risks," and affirmed the importance of Congress "establishing stronger regulatory bodies around cryptocurrencies." This internal disagreement within government agencies, along with regulatory uncertainty, introduced instability to the market, impacting investor confidence and decision-making.

Simultaneously, frequent hacking incidents in the crypto asset industry severely undermined market confidence. As crypto asset prices continued to climb, so did the frequency of crypto security incidents. In February, the world's second-largest crypto service provider, CEX Bybit, suffered a hacking attack, reportedly losing $1.46 billion in Ethereum. These hacking incidents exposed weaknesses in the crypto asset industry's technology and risk management, as well as vulnerabilities in the security of crypto trading platforms. The difficulty in preventing hacking attacks fueled panic among market participants, further contributing to the market downturn. These security events not only resulted in direct economic losses but also significantly damaged the reputation of cryptocurrencies and public trust.

Finally, the impact of DeepSeek's emergence on US tech stocks, and the influence of venture capital on crypto assets, also played a role. Dominant US tech companies are having their valuations reassessed in the face of lower-cost, more efficient AI. Given the close relationship between crypto assets and US tech companies, the rise of DeepSeek and other Chinese AI technologies, in a way, accelerated the re-evaluation of crypto asset values. This factor added further uncertainty to the cryptocurrency market volatility.

In summary, while many members of the Trump 2.0 cabinet were largely supportive of crypto assets, the randomness and uncertainty of Trump's policies remain high. During this period, significant, even disruptive changes could occur in the global macroeconomic environment, liquidity conditions, and foreign policy, interfering with market funds, investor behavior, and sentiment, further amplifying crypto asset volatility. (This article represents personal views and opinions only. Markets are risky; invest cautiously.)