Crypto market recovers from tariff shock

Market overview

The crypto market capitalisation stood at $3.9 trillion on Monday, up 4.4% from the previous day but down 6% from pre-Friday crash levels. On Friday, the US stock market saw its biggest drop since April but recovered some of its losses on Monday. Since Sunday, the crypto market has been attempting to rebound after a sell-off that began as an emotional reaction to tariff initiatives by China and the US but escalated into massive margin calls and stop orders being triggered.

The sentiment index stood at 38 (fear) on Monday morning, down from 24 (extreme fear) the day before. The level of sentiment we saw over the weekend was last seen in April under similar circumstances — when tough trade tariffs were announced.

Bitcoin approached $115K on Monday, while Ethereum exceeded $4,200. Cryptocurrencies are recovering after Friday's sharp decline. The movement on Friday and in the early hours of Saturday swept the ‘weak hands’ out of the market, taking the price of BTC below the 50—and 200-day moving averages and below the August and September lows.

Such sweeping liquidations often set the bottom of the market, but it may take time for the wounds to heal. In 2020, 2021 and 2024, it took a couple of weeks for the rally to start, although the market did not rewrite the lows. But in 2022, the turnaround to growth after the crash began after about six months. Relying on these statistics is encouraging for bargain hunters in crypto. Still, it would be too hasty to say that the recovery will be just as quick and will begin immediately.

News background

Wall Street crashed on Friday after US President Donald Trump escalated the trade conflict with China following Beijing's tightening of restrictions on trade in rare earth metals, Reuters reports.
Cryptocurrencies and stock indices fell sharply on Friday.

Some softening of tone from Trump and Xi has led to the probability of 100% tariffs against China by 1 November being estimated at 8% on Polymarket, down from 26% at the end of Friday.
Santiment notes that bitcoin remains extremely sensitive to risk appetite and behaves more like a risky asset than a safe haven.

The Kobeissi Letter notes that the collapse of cryptocurrencies on 11 October will not have long-term fundamental consequences and was caused by a combination of technical factors. The market crash triggered a record cascade of liquidations worth $19.3 billion.

Analyst Frank Fetter, citing technical indicators, said the cryptocurrency market is still far from overbought, which means there is still potential for the rally to continue.