The US-China trade war has severely impacted the market! Bitcoin price prediction: Will BTC experience a 30% crash again?

Bitcoin is once again caught in the vortex of high-risk geopolitical confrontations, with the China-US trade war putting pressure on the crypto assets market. Bitcoin experienced a nearly three-month 30% fall from March to May due to similar geopolitical events; will history repeat itself?

US-China trade war triggers a $19 billion settlement tsunami

After President Trump announced a 100% new tariff on Chinese imports and implemented comprehensive export controls on critical software, the market reacted swiftly and brutally. Bitcoin plummeted more than 13% from a high of over $126,000, briefly dropping to a low of $107,000. This decline, in absolute value, exceeded $16,000, which is extremely rare for Bitcoin that had just hit an all-time high.

More than 19 billion USD in leveraged positions evaporated within a few days, with over 9.4 billion USD disappearing in just 24 hours. This is one of the most severe liquidation events in the history of Crypto Assets, second only to the “519 massacre” in May 2021. News of the Sino-U.S. trade war became the fuse, igniting the accumulated leverage bomb in the market. Before the tariff announcement, the open interest in perpetual contracts was at a historical high, and the financing rate remained positive, indicating that the market was filled with bullish leveraged longs.

When Trump's tariff news triggered an initial fall, these fragile leveraged positions collapsed rapidly. High-leverage long positions were first liquidated, and these passive sell-offs further depressed prices, triggering the next round of liquidations, forming a “liquidation waterfall.” The evaporation of 9.4 billion dollars within 24 hours demonstrates the destructive power of this chain reaction. Bitcoin price predictions must take this leverage dynamic into account, as it amplifies the impact of external shocks.

Trade news has spread to the Crypto Assets market, and a familiar feeling has swept through the entire market. During the correction from March to May, similar geopolitical events triggered a nearly three-month long 30% fall, a resonance that is hard to ignore. The trigger at that time was also the escalation of the China-U.S. trade war, with Bitcoin falling from around 73,000 USD to about 50,000 USD, a decline of 31%. This plunge did not happen in a single day but gradually eroded investor confidence over the course of three months.

Behind the price trends, the mechanisms are clear and brutal. As volatility soars, liquidity across exchanges has become fragmented. The altcoin market is in chaos, exacerbating the sell-off. The collapse of the USDE stablecoin and a series of liquidation events reveal how tightly intertwined the liquidity of Crypto Assets is with global macro risks, as well as the headline impacts from Washington and Beijing.

Fragmentation of Liquidity and the Chain Reaction of Stablecoin Decoupling

The impact of the China-U.S. trade war on the crypto market is not limited to falling prices; more seriously, it involves liquidity pressure and spillover effects. As volatility surges, liquidity across exchanges becomes fragmented, leading to widened bid-ask spreads and difficulties in executing large orders. This fragmentation of liquidity is particularly severe in the altcoin market, where the trading depth of many small tokens disappears instantly, resulting in one-sided price crashes.

The collapse of the USDE stablecoin is the most striking case in this crisis. This synthetic dollar saw its price plunge to 0.65 USD during the market panic triggered by the China-U.S. trade war, with a decoupling magnitude of 35%. Although Ethena Labs emphasizes that the decoupling mainly occurred on the Binance platform, this is the reality experienced by users trading on that platform. The decoupling of the stablecoin triggered a chain reaction, causing DeFi protocols using USDE as collateral to trigger liquidations, which further depressed prices, creating a vicious cycle.

Even though the dovish remarks from the Federal Reserve have sparked risk appetite sentiment, the speed and intensity of deleveraging have exposed structural vulnerabilities. Crypto Assets are high beta liquidity assets that get punished when systemic risks surge. This characteristic was vividly demonstrated during the Sino-U.S. trade war, where Bitcoin fell by 13%, far exceeding the slight fluctuations in gold and even surpassing the decline of the S&P 500 index.

Bitcoin price predictions must acknowledge this reality: in genuine geopolitical crises, Bitcoin is still regarded as a risk asset rather than a safe haven asset. Although the long-term narrative positions Bitcoin as “digital gold,” the behavior of institutional investors in the short term indicates that they trust traditional safe-haven assets like gold and U.S. Treasuries more during times of crisis. This market structure is difficult to change in the short term.

Institutional Resilience and Retail Reverse Buying

(Source: Ecoinmetrics)

However, behind the turmoil, the Bitcoin industry has not given up. Institutional investment portfolios may have reduced risk, but Bitcoin's position as a macro hedging tool still seems solid. Currently, more than 172 listed companies hold Bitcoin, which is an important stabilizing force under the impact of the China-U.S. trade war. These companies include Strategy, Tesla, etc., which adopt a buy-and-hold strategy and will not sell off due to short-term fluctuations.

Even as ETF outflows increase, retail buyers have poured over $1.1 billion into the spot market during the market downturn. This contrarian buying behavior reflects the confidence of some investors in the long-term value of Bitcoin. While institutions reduce their positions due to risk management needs, retail investors are instead accumulating at lower levels; this divergence has historically often signaled the formation of a bottom.

Bitcoin price forecasts indicate that the stability of institutional holdings and the counter-trend buying by retail investors together provide a solid foundation for the support level of $107,000. If this support holds, Bitcoin may gradually build a bottom during fluctuations, waiting for an opportunity for the easing of the Sino-U.S. trade war.

However, the headwinds may persist. Econometrics indicates that the declines from March to May were only resolved when risk appetite recovered nearly three months later. This suggests that the current adjustment may not be a short-term phenomenon, but rather a process that could take weeks or even months to complete. The uncertainty of the China-U.S. trade war will continue to suppress risk appetite, and Bitcoin can only resume its upward trend when both parties reach some kind of agreement or the market fully digests the worst expectations.

Bitcoin is currently struggling to maintain support above $107,000, while the October market is turning into a war of attrition, with everyone's attention focused on the China-U.S. trade war. If the trend from March to May repeats itself, the turmoil triggered by the macroeconomy could last until November, when Bitcoin's long-term trend may resume.

Bitcoin Price Prediction Three Scenario Paths

Based on historical experience and the current market structure, Bitcoin price predictions can be summarized into three scenarios. In the optimistic scenario, if the Trump-Xi meeting reaches a trade agreement on October 31, and the US-China trade war eases, Bitcoin may quickly rebound to the resistance zone of $114,000 to $117,000 in November, and even challenge the historical high of $126,000. This scenario requires a rapid recovery in market sentiment, a restoration of ETF fund inflows, and institutions to re-increase their risk exposure.

The basic scenario is a continuation of oscillation and digestion. Bitcoin fluctuates between $107,000 and $115,000, potentially lasting until November or even December. This scenario assumes that the China-U.S. trade war, while not fully resolved, has not worsened further, and the market gradually adapts amid uncertainty. Referring to the experience from March to May, this digestion period could last up to three months, during which prices repeatedly test support and resistance, and volatility remains high.

The pessimistic scenario is the escalation of the China-US trade war. If the Trump-Xi talks break down or Trump imposes more tariffs, Bitcoin could fall below $107,000, testing deeper support levels between $93,000 and $95,000. In this scenario, the fear index could drop below 20, and the market would enter a state of extreme panic. However, even in this situation, the holdings of 172 listed companies and the reverse buying by retail investors could form strong support around $93,000, preventing a deeper crash.

Currently, volatility is a feature, not a flaw. If history can serve as a guide, the revival of Crypto Assets will not come from predictions, but from a gradual return of risk appetite and liquidity. When the China-US trade war eases and whether a deal can be reached at the Trump-Xi meeting, these are the biggest variables in Bitcoin price predictions.