Crypto Markets Rocked by US Economic Uncertainty
The week began with turbulence in the United States’ economic landscape, which subsequently impacted the cryptocurrency market. Following President Donald Trump’s announcement of new tariffs targeting imports from Canada, Mexico, and China, the crypto sector experienced widespread losses on both spot and derivatives exchanges.
Perpetual Swap Contracts Face the Brunt
A recent study conducted by a leading crypto derivatives exchange, in partnership with a well-known institutional analytics firm, has shown that this volatility resulted in an estimated $10 billion decrease in open interest for perpetual swap contracts. Major cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Solana (SOL), collectively saw their open interest decline by more than $3.1 billion.
During this period of increased market stress, trading volumes for these perpetual swap contracts surged to new monthly highs, reaching approximately $31 billion, as traders urgently sought to close out their positions. A significant number of leveraged positions were liquidated as traders were unable to meet margin calls amidst the rapid decline in spot prices.
Recent trading sessions have been characterized by instability, with Monday marking the second consecutive day of notable early sell-offs. The preceding trading day, January 27, faced similar pressure with the introduction of a more accessible artificial intelligence model, further contributing to market uncertainty and pushing down funding rates for the majority of crypto assets.
The analysis pointed out that Bitcoin’s open interest demonstrated greater stability compared to the broader market fluctuations observed in perpetual swap trading. This suggests that while the derivatives market experienced substantial liquidation, the spot market did not see a corresponding increase in trading volume at the beginning of the month.
Altcoins Experience Increased Volatility
In contrast to Bitcoin, many altcoins continued to face downward pressure after the market downturn, with Ethereum showing the most volatility. ETH’s realized volatility rose above 140%, a level not seen in more than three months. Furthermore, its implied volatility term structure experienced a sharp increase and remained inverted for several days following the sell-off.
The combined effect of negative funding rates and a steeper drop in its spot price – with ETH falling to around $2,500 – has caused concern among traders. With Ethereum’s implied volatility significantly higher than Bitcoin’s for similar timeframes, market participants anticipate further price swings, as the asset’s current valuation only partially reflects its downside risk.
Maxwell Reed is the first editor of Cryptovista360. He loves technology and finance, which led him to crypto. With a background in computer science and journalism, he simplifies digital currency complexities with storytelling and humor. Maxwell began following crypto early, staying updated with blockchain trends. He enjoys coffee, exploring tech, and discussing finance’s future. His motto: “Stay curious and keep learning.” Enjoy the journey with us!