Trump promises crypto legislation, but the market crashes by $92,000. What does this imply?

Trump announced at Davos that he will soon sign the Cryptocurrency Market Structure Act, aiming to solidify the United States’ position as the “Global Crypto Capital.” However, this policy commitment did not stimulate the market; instead, over the past two days, the crypto market experienced a sharp decline: Bitcoin dropped to $92,000, Ethereum fell below $3,200, and long positions were liquidated for over $800 million. Why did a policy positive turn into a market killer? This reflects a deeper change in market sentiment.

The Full Picture of Policy Commitments

Trump stated that the U.S. Congress is actively drafting legislation to structure the cryptocurrency market, covering various crypto assets including Bitcoin. This is another heavyweight policy initiative following the signing of the GENIUS Act last year. The core goal of the new bill is to “open new development pathways” for the American people and unleash innovation in savings and financing.

From a policy perspective, this has been long awaited by the crypto industry. A clear market structure framework is crucial for institutional capital to enter. But in reality, this commitment has not received the expected market response.

The True Triggers of the Market Drop

Geopolitical Risks Reignite

The recent market decline was not directly caused by crypto policy itself but by Trump’s threat of tariffs on Europe. He announced a 10% tariff increase on eight European countries, sparking concerns over an expanding trade war. This directly impacted risk assets, with cryptocurrencies leading the decline.

XRP’s performance was the most intuitive: its price fell below $2, and open interest in futures contracts decreased by about 9% within 24 hours to $3.55 billion. This indicates how severe the market’s risk-averse sentiment is.

Changes in the Fed Chair Nominee

Another factor suppressing the market is the uncertainty surrounding the Federal Reserve chair nomination. Kevin Hasset, previously considered a frontrunner, recently indicated he is more likely to remain in his current White House position, essentially withdrawing from the Fed chair race. This caused market expectations to adjust rapidly, with the probability of former Fed Governor Kevin Wirth becoming chair soaring to about 60%.

Wirth is widely perceived as leaning towards a “hawkish” stance, implying the Fed may continue to maintain high interest rates. For risk assets like cryptocurrencies, this is a bearish signal.

Crypto-Friendly Legislation Faces Obstacles

It was also reported that the CLARITY Act encountered delays in the Senate, dampening expectations for policy progress. Investors are beginning to realize that the implementation of crypto policies is not a smooth process.

Subtle Changes in Market Psychology

Interestingly, Yat Siu, co-founder of Animoca Brands, said that the “Trump moment” in the crypto industry has ended, and the next phase will be driven by real users, solid infrastructure, and regulation, rather than individual influence. This view resonated in the market.

This reflects an important shift in mindset: the market is returning from “political hype” to “fundamentals.” Investors are starting to think more calmly about whether policy commitments alone are enough to support the long-term value of crypto assets.

Investors’ “TACO Trade” Expectations

There is an interesting trading pattern circulating in the market: Trump makes tough statements over the weekend, the market sentiment crashes first, investors buy the dip, then government officials come out to soothe, and finally an agreement is reached. This is called the “TACO trade” (Trump’s retreat at the last minute).

Analysts suggest Trump may be using tariff threats as a negotiation tactic. This means the current decline could be just a “false alarm.” But because of this uncertainty, investor confidence has been severely eroded, and many prefer to wait for clearer policy signals before acting.

Market Conditions Behind the Data

Matrixport’s analysis indicates that despite increased volatility, implied volatility has actually decreased significantly. This suggests that the market’s expectations for future fluctuations are not high, and the recent decline is more of an emotional correction rather than a trend reversal.

Summary

Trump’s crypto policy commitments are indeed positive, but the market’s poor reaction is clear: geopolitical risks, Fed policy uncertainty, and obstacles to crypto-friendly legislation have combined to overshadow the policy benefits.

A deeper issue is that the market is reflecting on the sustainability of “political hype.” Investors are beginning to realize that while policy support is important, the long-term growth of the crypto industry depends on infrastructure, user base, and regulatory frameworks.

The current decline may be just “a false alarm,” but this scare has exposed a real problem: the crypto market’s over-sensitivity to policy signals, which weakens its focus on fundamentals. This shift may be underway, and the market’s volatility is a reflection of this transformation.