Why Crypto Is Crashing & What Happens Next

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The crypto market has dumped in recent days following the U.S. government’s announcement of sweeping tariffs on Canada, Mexico and China. Below, I unpack why the market is tanking and explore what happens next.

Key Takeaways

  • On the weekend, Trump imposed 25% tariffs on Canada and Mexico and 10% tariffs on China. The nature of the announcement took the market by surprise, causing a sell-off across all risk assets, including cryptocurrencies, with altcoins hit particularly hard.
  • Historically, these heavy sell-offs are a normal part of any crypto bull market. The reasons behind them are always different.
  • This is yet another reminder of the risks of having a large percentage of your portfolio in altcoins. It’s fun when the market is going well, but brutal when it’s not.
  • While the situation is fluid, I am not selling any cryptocurrencies because I ultimately don’t think this weekend’s events marked the cycle top. That said, I do expect the next few weeks, at least, to be volatile and filled with uncertainty.

Why Crypto Crashed

U.S. President Donald Trump has been pro-tariffs for several decades. He promised tariffs in his election campaign. And he imposed tariffs on China during his first presidential term. And yet, this weekend’s news still came as a surprise.

Prior to this weekend, the most common beliefs surrounding tariffs were as follows:

  • Trump is only using tariffs as a negotiation tactic. He won’t actually impose them.
  • If Trump imposes tariffs, he will design them so they gradually increase.
  • If Trump imposes tariffs, he will announce them in a few weeks or months.

U.S.-imposed tariffs are bad for crypto and other risk assets for various reasons. Mainly because they strengthen the dollar, harm economic growth, and typically lead to higher inflation. (For more on Trump’s tariff plan, I recommend clicking through and reading the thread below on Twitter/X.)

Where to Now?

News of these tariffs has some crypto investors declaring that the bull market is over. I strongly disagree with this sentiment. Sure, the tariffs have introduced lots of uncertainty—which will likely remain for a few weeks—but crypto ultimately still has several tailwinds to help it throughout 2025 (e.g. pro-crypto U.S. government).

For the very short-term, it all depends on what happens with tariffs. There are still a number of unanswered questions that investors are wrapping their heads around. The answer to all these questions will impact short-term market performance.

  • Is this just a negotiating tactic? There is an outside chance this is true. Trump may walk back tariffs in the coming days. Seems highly unlikely though.
  • Will Trump impose tariffs on other countries? Very likely. The EU is most likely to be next. Don’t be surprised to see Japan and South Korea targeted at some stage.
  • What about other goods and commodities? Last week, Trump said the administration would impose tariffs on oil and gas imports, likely next month. He also said he planned to “eventually” impose tariffs on semiconductor chips, steel, aluminium, copper and pharmaceuticals.
  • How long are the tariffs imposed for? There’s no end date. While they may remain for Trump’s entire presidency, it’s likely that the percentages will change. (What happens here will depend on negotiations.)
  • How will other countries retaliate? This will depend on negotiations. For what it’s worth, Trump is meeting with Canada and Mexico on Monday. (Canada has retaliated by imposing 25% tariffs on goods imported from the U.S., effective February 4.)
    • As for China, given its economy continues to struggle versus expectations, it will arguably be more inclined to compromise with Trump. (Worth noting, during the election campaign, Trump threatened to hit Chinese-made products with tariffs of up to 60%.)

What I’m Doing

Personally, I’m holding through the pain as it’s simply too hard to get comfortable with the risk-to-reward of selling after such a sharp sell-off. In terms of buying, I will opt against trying to catch a falling knife. Depending on how steep I fall, I may look to add to Bitcoin (BTC) and other major altcoins.

To be sure, this was yet another reminder of the importance of having a large percentage of your crypto portfolio in BTC. This is something I’ve advocated for over the years for a reason. When panic enters the crypto market, altcoins are always the first thing people look to sell, not BTC.

btc portfolio example ben
Example of Ben’s portfolio, of which nearly half is held in BTC