Crypto and Global Markets Rattled by Tariff Shock: Ethereum Bears the Brunt

After former President Donald Trump made his unexpected announcement about tariffs, followed by a temporary 90-day pause on enforcement, the global financial markets were shocked into a sharp risk-off mode.

Around the world, equities saw heavy selling. Even the crypto market—which is usually touted as a hedge against traditional financial instability—was not spared. In fact, Bitcoin tracked stock indices closely, while Ethereum, drawing attention to its growing volatility during macroeconomic uncertainty, suffered an almost 200% increase in losses compared to Bitcoin.

Between the early tariff shock and the 90-day delay announcement, investors saw a swift decline across many asset classes. The S&P 500 (SPX), which is the main benchmark for large-cap U.S. stocks, plunged 12.1%. Its European counterpart, the STOXX Europe 600 (SXXP), fell 10.7%, and Asia’s AAXJ index—which excludes Japan and includes markets such as China, India, and South Korea—dropped 12.5%.

In the global equity sell-off, Bitcoin ($BTC) fell by 11.0%, a drop that closely tracked the broader risk asset class. Ethereum ($ETH), however, fared much worse, plunging 22.5% over the same period. This sharp divergence has prompted some to question not just Ethereum’s current risk profile but also its relationship to macroeconomic change—especially in the light of Bitcoin’s apparent immunity to these same upheavals.

Ethereum’s Steeper Slide Signals Diverging Market Behavior

Increasingly, Bitcoin is seen as a macro asset, trading in sync with stocks, responding in a timely fashion to the push and pull of the larger economy. By contrast, Ethereum’s huge drop suggests that it’s still a perceived-to-be-high-risk, skeletal-realm kind of deal. Why does Ethereum behave so? Blame it on its factors—that is, on several uncertain or unknown elements that Ethereum has as a de facto public company. Here’s a not-at-all-comprehensive look at a few of those factors.

Ethereum’s further fall is probably a function of the market being worried about the altcoin ecosystem—of which Ethereum is a part—that, during macroeconomic calamities, tends to take a punch to the solar plexus and fall much farther than Bitcoin. Bitcoin (BTC) has its problems—scalability, for instance—but it is now being widely viewed in the financial world as a sort of safe haven or digital gold. Ethereum (ETH), on the other hand, is much more closely tied to the fundamentals of network and, especially, developer activity, which, across the board, seems to have taken a hit. Those problems seem to have hit Ethereum harder than they have hit other ‘fundamentals stocks’ like Cardano and Solana.

The pressure on Ethereum was undeniably building, and it was made worse by the fact that Ethereum’s price had been suffering from other kinds of pressure well before the recent tariff shock. On-chain activity has stagnated, gas prices have recently hit all-time lows, and new Layer 2 solutions seem to be attracting both developers and users away from the Ethereum mainnet. In this environment, a 22.5% drawdown in Ethereum’s price looks very much like a drawdown in the narrative around all the promising developments set to take this network to the next level.

Risk Assets Under Pressure, Crypto Fails to Decouple

The sell-off in both stocks and cryptocurrencies, taking place at the same time, once again tests the notion that digital assets can serve as shelters during regular market downdrafts. If anything, Bitcoin and Ethereum seem to be providing even more leverage in this space than major equity indices. In the past week, BTC’s 11.0% drop in price came in slightly better than most of the major equity benchmark dives. Still, the level of correlation calls into question what we’ve been told about the current asset class. Is BTC even more volatile than a tech stock?

In contrast, Ethereum’s steep decline could denote a shift back toward the speculative forces of 2021 and early 2022. Those were the periods when altcoins took extreme price swings—sometimes up and other times down—that were largely driven by sentiment and the availability of liquidity. During those same first few months of 2022, some analysts took to the trade in saying that the crypto markets were not much unlike the stock markets from 2000 to 2003.

What is clear is that macro shocks—especially those related to geopolitics and global trade policy—are affecting crypto market dynamics more than ever. This is particularly true for the price of Bitcoin. While these macro influences used to be felt mostly by the price of traditional safe havens, like gold, they now seem to hit Bitcoin in much the same way. Viewed this way, the increased correlation of Bitcoin with the traditional financial markets might be seen as exposing the currency to the same kinds of vulnerabilities that afflict those markets and that afflict them, too—vulnerabilities that used to be the province of safe havens.

Investors are bracing for further word from the ruling authorities, central banks, and regulators. The narrative flows from them into the market, and the market narrates back to us that we’re still living in the ‘forbidden zone,’ where crypto assets are simply another financial instrument subject to control, or not, by the police powers of the state. For now, most investors only know that they don’t know what’s coming next.

Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.

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