Risk aversion heats up, cryptocurrencies collectively plummet with a $1 billion liquidation

Trump’s tariff threats and bond market selling pressure triggered a massive risk-off in the global cryptocurrency markets on January 21. Major cryptocurrencies such as Ethereum, Solana, and Cardano collectively declined, with Bitcoin briefly falling below $90,000. Over $1 billion in positions were liquidated within 24 hours. This is not only a market fluctuation but also a reflection of a sharp shift in market risk appetite.

Major cryptocurrencies decline collectively, high-beta assets lead the fall

According to the latest data, the decline in the cryptocurrency market is highly differentiated:

Ethereum experienced the deepest decline, dropping 6.5% in 24 hours and falling below the $3000 threshold. More notably, high-beta tokens like Solana and Cardano declined over 12% and 15% in the past week, far exceeding their short-term drops. This indicates that during market panic, these volatile assets are among the first to be sold off by investors.

Dual shocks: geopolitical risks and bond sell-off

The triggers for this decline are clearly visible:

• Escalation of geopolitical tensions: Trump announced a 10% tariff increase on several European countries, applying pressure over Greenland issues. European stock markets opened sharply lower, with the Euro Stoxx 50 down 1.7% and Germany’s DAX down 1.3%.
• Bond market sell-off: U.S. and Japanese bond markets experienced significant selling pressure, with yields soaring, prompting investors to seek safer assets.
• Gold and silver rally: In stark contrast to cryptocurrencies, gold and silver hit record highs, fully confirming the flow of safe-haven funds.

These two forces combined directly suppressed demand for high-risk assets like cryptocurrencies.

Leverage liquidations trigger chain reactions

The falling price of Bitcoin, as a market indicator, triggered a chain of leveraged position liquidations. Data shows that over $1.09 billion worth of crypto positions were liquidated in the past 24 hours, with 92% being longs. This means a large number of bullish leveraged trades were forcibly closed as prices declined, further accelerating the downturn.

This cascade of liquidations is especially dangerous in low-volatility environments. According to related reports, the implied volatility of Bitcoin and Ethereum has decreased by 18-25 points over the past two months, indicating that the market’s previous risk pricing was significantly insufficient. When sudden shocks occur, market tolerance drops sharply.

Market sentiment shifts to defensive

Interestingly, this sell-off also reflects a change in market participants’ mindset. Reports indicate traders have shifted from chasing breakout trades to range-bound strategies. Some institutional investors are increasing spot holdings while continuously selling call options to collect premiums, a “yield-enhancement” strategy better suited to the current low-volatility environment.

Overall, the market is entering a more defensive phase. Investors are closely watching the policy developments following Trump’s attendance at the Davos Forum and the potential impact of the Federal Reserve personnel changes (with Kevin Wirth, a former Fed governor, being a hot candidate for the next chair).

Summary

The core of this crypto crash is a rapid shift in risk appetite. Trump’s tariff threats and bond market sell-offs have pushed safe-haven funds into traditional assets like gold and the US dollar, while cryptocurrencies, due to their high volatility and leverage concentration, have become the primary targets of sell-offs. Although the $1 billion liquidation scale is not the largest in history, it reflects the current market’s vulnerability to sudden shocks.

In the short term, the crypto market awaits signals of geopolitical risk easing or bond market stabilization. Traders should exercise caution in managing positions and leverage, especially in a low-volatility environment where even small shocks can trigger significant volatility.