Bitcoin is once again caught in the crossfire of a high-stakes geopolitical conflict. This time, the ripple effect is being felt in every corner of the virtual currency market. This structure is well known. The resurgence of US-China trade tensions has triggered a sharp correction in Bitcoin, mirroring a pattern seen earlier this year. BTC corrected by 30% when escalating tariffs caused risk assets to soar for weeks.
US-China trade tensions: new macro shock, new Bitcoin decline
The “Uptober” started in traditional style with Bitcoin’s nearly 18% rally, but quickly deteriorated as President Trump announced new 100% tariffs on Chinese imports and comprehensive export controls on critical software.
The response was swift. Bitcoin has fallen more than 13% from a high of more than $126,000, dropping to the low $107,000 range at one point as more than $19 billion in leveraged positions were wiped out in a matter of days, more than $9.4 billion of which was wiped out in just 24 hours.
Trade headlines permeated cryptocurrencies, creating a sense of déjà vu in the market. The impact of the March-May correction, where a similar geopolitical flare-up caused a 30% drawdown and lasted nearly three months, could not be ignored.
Liquidity stress and contagion
The mechanism behind price fluctuations was clear and brutal. As volatility soared, liquidity became fragmented across exchanges. The altcoin market was in turmoil and the decline widened. The collapse of the USDE stablecoin and a series of liquidations revealed how crypto liquidity is intertwined with global macro risks and headline shocks from Washington and China.
Even as the Fed stoked risk-on sentiment with dovish rhetoric, the speed and violence of its deleveraging exposed structural weaknesses. Cryptocurrencies are high-beta liquid assets and are penalized when systemic risk spikes.
Structural resilience under disruption
However, despite the uncertainty, the industry is not giving up. Institutional investor portfolios may be mitigating risk, but Bitcoin’s status as a macro hedge appears intact. More than 172 public companies currently hold Bitcoin in their treasuries. And even though ETF outflows increased, retail investors poured more than $1.1 billion into the spot market during the drawdown.
That said, headwinds are likely to continue, with Ecoinometrics noting that the previous drawdown for this flavor did not resolve until risk appetite returned nearly three months later.
Bitcoin is currently struggling to defend support above $107,000 and October is turning into a war of attrition, with all eyes on the US-China trade tensions. If the March-May scenario repeats, the macro-induced disruption could last into November before Bitcoin’s long-term trend resumes.
For now, volatility is a feature rather than a bug, and if history is any guide, the recovery in cryptocurrencies will come less from prediction and more from a gradual return to risk appetite and liquidity.
(Tag translation) Bitcoin
