The cryptocurrency market suffered a sharp selloff following renewed U.S.–China trade tensions, but historical patterns and easing monetary policy suggest a potential rebound may be on the horizon.
Why did the crash occur
Major cryptocurrencies tumbled this week amid escalating trade hostilities between the U.S. and China. Bitcoin (BTC) dropped to $106,000 from its recent all-time high of $126,500, while Ripple (XRP) plunged 62% to $1.37, erasing year-to-date gains.
The latest wave of volatility was triggered by a rapid deterioration in U.S.–China relations. Beijing imposed new tariffs on American ships, launched an investigation into Qualcomm, and announced export restrictions on rare earth metals and magnets — key materials for global manufacturing.
Because China controls over 70% of the rare earth industry, these restrictions deepened fears of a prolonged trade standoff. In response, U.S. President Donald Trump unveiled harsher tariffs on Chinese goods and new limits on software exports, prompting broad-based market panic.
Investor sentiment deteriorated sharply, with the Crypto Fear and Greed Index plunging to 35 (fear zone) and CNN’s broader index falling to 25 (extreme fear).
History shows rebounds often follow major crashes
Despite the selloff, past market behavior suggests that digital assets could soon recover. Bitcoin has historically rebounded strongly after geopolitical and macroeconomic shocks.
Following Trump’s “Liberation Day” in April, Bitcoin fell from $109,165 to $74,500, only to surge to a new record high of $111,165 within a month.
A similar trend unfolded in 2020, when Bitcoin dropped below $5,000 during the onset of the COVID-19 pandemic but rallied past $60,000 by March 2021. The recovery was driven by institutional adoption and expectations of monetary easing — conditions that may be re-emerging today.
Possible catalysts for a rebound
Traders are now watching whether Trump’s upcoming South Korea trip will include a meeting with Chinese President Xi Jinping to de-escalate tensions. While Trump has threatened to cancel, even partial diplomatic progress could restore confidence in risk assets.
At the same time, markets expect the Federal Reserve to continue easing policy after its latest 25-basis-point rate cut. Additional cuts could support liquidity and risk sentiment — both key drivers of past crypto rallies.
Historically, Bitcoin and broader crypto assets have performed well during Fed easing cycles, as investors seek alternatives to traditional assets amid lower yields.
Outlook
While near-term volatility may persist, technical and macro factors suggest the crypto market could stabilize and recover once geopolitical tensions ease and liquidity conditions improve. If Bitcoin maintains support above $100,000, analysts see potential for a renewed push toward $120,000–$125,000 in the weeks ahead.
