The cryptocurrency market experienced a significant downturn during the final two working days before 2025, with Bitcoin briefly falling below $92,000. This triggered $2.028 billion in liquidations across exchanges within 24 hours, affecting over 700,000 traders globally. Let's analyze the primary factors behind this market correction.
1. DeepSeek AI Triggers Mini-Financial Crisis
The unexpected success of Chinese AI model DeepSeek created shockwaves across global markets:
- Achieved #1 download ranking in U.S. App Store on January 27
- Demonstrated comparable performance to leading AI models at just $6M development cost
- Challenged the "bigger budgets win" paradigm in AI development
Market Impact:
- Nvidia shares dropped 5.3%
- NASDAQ fell over 400 points
- Crypto markets saw 4.4% Bitcoin decline
This technological disruption created uncertainty across risk assets, with crypto markets showing continued weakness throughout the following week.
2. Trump Administration Tariff Policies Take Effect
Recent trade policies have significantly impacted global markets:
Tariff Timeline:
| Date | Action |
|---|---|
| Feb 2 | 25% tariff on Canadian/Mexican goods |
| Feb 1 | 10% additional tariff on Chinese imports |
| Feb 3 | New EU tariffs announced |
Market Reactions:
- BTC briefly dropped to $91,000 (2-week low)
- Mixed analyst perspectives on long-term crypto impact
- Concerns about potential trade wars and stagflation
3. El Salvador Removes Bitcoin's Legal Tender Status
In a surprising reversal:
- January 30: Legal amendments proposed
- February 2: Bitcoin officially loses currency status
Changes include:
- No mandatory acceptance by merchants
- Voluntary usage only
- Government stops accepting BTC tax payments
Paradoxical Behavior:
Despite policy change, on-chain data shows El Salvador continues accumulating BTC:
| Date | BTC Added | Total Holdings |
|---|---|---|
| Feb 1 | 5 BTC | 6,055 BTC |
| Jan 20 | 11 BTC | 6,050 BTC |
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Market Outlook and Analysis
The convergence of these factors created perfect storm conditions:
- Technological Disruption: AI advancements challenged tech sector valuations
- Policy Uncertainty: Trade tensions increased market volatility
- Regulatory Shifts: Changed perception of crypto adoption timeline
FAQ Section
Q: How long will this market correction last?
A: Historically, such multi-factor corrections typically last 2-4 weeks before stabilization.
Q: Should investors be concerned about El Salvador's policy change?
A: While symbolic, the practical impact appears limited as adoption continues organically.
Q: What's the safest strategy during such volatility?
A: Dollar-cost averaging and portfolio diversification remain recommended approaches.
Q: Could tariffs actually benefit Bitcoin long-term?
A: Some analysts believe weaker dollar policies could increase BTC's appeal as hedge.
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The coming weeks will be crucial for observing whether these are temporary shocks or indicators of longer-term trends. Market participants should monitor:
- U.S. equity market reopen performance
- Further policy announcements
- Institutional positioning changes