#TradeWarEases After the rapprochement between the US and China, is the crypto market in danger? And will liquidity exit?
The US and China concluded high-level trade talks in Geneva, which for the first time featured a 'friendly tone' after a long period of tension. They agreed to establish a new economic advisory mechanism, which means they are trying to create a long-term understanding instead of remaining in a spiral of trade war.
This issue immediately reflected on market movements
The US reduced tariffs on Chinese imports from 145% to 30%. China responded with a similar cut from 125% to 10%. As a result, global markets began to stabilize, and people started to refocus on traditional stock markets.
How does this affect the crypto market?
Here lies the crucial point: will this global stability cause liquidity to exit crypto and return to the stock markets? This could actually happen... and if it does, it will have a clear and dangerous impact, especially on high-risk assets in crypto.
Let's go back a bit and rearrange the events
The crypto market is currently experiencing a strong recovery; the liquidity that entered was coming from financial institutions, individual investors, and hedge funds, all fleeing from inflation and high interest rates.
But after the new agreement between the US and China, and the beginning of signs of interest rate cuts in the US, investors are thinking
Why take the risk of crypto in the presence of economic stability and opportunities in the traditional market? This is the turning point.
Will liquidity really exit?
The issue isn't black and white. But let me simplify it for you
Partial withdrawal is possible, and that's the closest scenario right now
The liquidity that entered crypto rapidly for quick profits will start to exit in phases. The beginning will be from small projects, meme coins, and currencies that have no real use. The market won't collapse, but there will be a significant and painful correction for some coins.
Full withdrawal is unlikely in case of a sudden rise in stock markets
If a Bull Run occurs in global markets and institutions start reallocating their positions in crypto to stocks, then the market could lose 30-40% of its value in weeks.
Which currencies will be most affected?
First, meme coins like $PEPE, $FLOKI, $DOGE, and $WIF are mostly based on trends and social media. If liquidity exits, these will be the first to fall quickly, with declines possibly reaching 40-50% in a very short time.
Secondly: altcoins that have no real value, meaning any project without a strong team or a real solution to a market problem will be the first candidate to fall.
Thirdly, decentralized finance (DeFi) protocols like $AAVE, $MKR, and $SNX will be affected in one case: if the Total Value Locked (TVL) starts to decline, then the protocol itself will be affected, and the price will drop accordingly.
Fourthly, Layer 1s like $SOL, $AVAX, and $ADA are strong coins, but a portion of them is driven by speculation, so a medium correction could happen, especially if liquidity shifts to Bitcoin.
And Bitcoin
BTC Bitcoin will be the most protected currency in this case because it is now considered a digital asset. If liquidity exits altcoins, a significant portion will return to Bitcoin as a store of value. This means we might see Bitcoin stable or even increasing while the rest of the market is bleeding. Of course, this is in cases of moderate, not total, liquidity withdrawal.
The situation in numbers right now
The market cap of crypto is about 3.34 trillion, with Bitcoin dominance at 63.8%. The price of Bitcoin is around $94,000.
So what should we expect next?
If there is a partial withdrawal of liquidity: the market will drop a bit but will stabilize, and if a severe withdrawal occurs, the market could drop to a market cap of around 2.2 - 2.5 trillion, and small and speculative coins will temporarily evaporate from the market.
The calm between the US and China could be beneficial for global markets but dangerous for crypto, which relies on rapid liquidity flow. Those holding speculative coins or meme coins must be cautious and start reviewing their portfolios. Because liquidity won't exit all at once, but will drip out... which means we need to monitor the market day by day to understand where the money is coming from and going.
And this is just analysis and opinion, not financial advice 😊👻