The Perfect Storm Before the Rally: Bitcoin’s Bounce Is Inevitable?

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Trump's victory in the US presidential election in the fall of 2024 brought renewed hope to the crypto community. The future president's rhetoric was notably positive toward the cryptocurrency industry. Many expected that his policies would provide a favorable environment for the market to prosper. However, since his inauguration on January 20, 2025, Bitcoin has experienced a dramatic 28% drop in value.

This unexpected decline has left many wondering: What caused such a significant downturn, and why hasn’t the anticipated growth materialized as promised? In this article, we will explore the factors behind the current decline in the crypto market and why it should be seen as a temporary phase rather than a permanent shift.

The Roots of the Decline

The significant decline in Bitcoin's value since the end of January 2025 can be attributed to a combination of factors, primarily the closing of long positions fueled by positive market expectations, which ultimately triggered a price pullback. As investor sentiment shifted, the situation worsened with subsequent statements by President Trump, signaling the beginning of a trade war.

In the new year, Trump made several controversial statements contributing to market uncertainty. On January 7, 2025, he suggested the US might use "economic force" to pressure Canada into joining as the 51st state. On January 23, 2025, at the World Economic Forum, he reiterated threats to impose broad tariffs on Canada (also Mexico and China) unless it accepted his terms, claiming the US was not reliant on Canadian resources. The world has gotten a direct message from the US presidential administration that tariffs will be Trump's chosen economic weapon.

The further development of events is already well known to everyone: “Liberation Day,” the trade war between the US and the rest of the world, especially China, which is now in full force, has brought significant uncertainty to the global financial system, including crypto markets.

First Trump Presidency Tariffs Cycle

Let’s turn to history: In 2018, the trade war between the US and China escalated, with Donald Trump imposing duties on Chinese goods. Cryptocurrencies, as high-risk assets, were highly sensitive to these changes. Bitcoin (BTC) and other cryptocurrencies dramatically declined, falling sharply from about $20,000 in December 2017 to approximately $3,000 by December 2018.

However, the cryptocurrency market began to show signs of recovery in 2019. A key driver of this recovery was a shift in the Federal Reserve’s (Fed) monetary policy. As a result, many investors returned to the cryptocurrency market as sentiment shifted back towards riskier assets.

Bitcoin and other cryptocurrencies continued their upward trajectory in 2020, as the Federal Reserve’s stimulus measures persisted and the onset of the COVID-19 pandemic further shaped the global economic landscape. These external factors, coupled with the Fed’s actions, played a crucial role in driving the resurgence of cryptocurrency prices.

Why Bitcoin's Decline Is Limited

Looking at previous cycles, for example, during the Trump trade war in early 2018, Bitcoin plummeted in value by 64% in the first three months.

In contrast, the current drop in Bitcoin's price of around 20%, while notable, reflects a much more subdued decline compared to past cycles, especially as Trump’s tariff policy has been much more aggressive now.

Despite the ongoing and escalating trade war, Bitcoin's resilience remains remarkable. Since 2018, the cryptocurrency market has matured: institutional support has strengthened, a more diverse range of investors has emerged, and there is growing awareness of Bitcoin's role as “digital gold” or a safe asset in times of uncertainty. This resilience suggests that although the market is experiencing temporary pressures, Bitcoin's long-term potential remains intact.

Potential for Bitcoin Growth

Due to macroeconomic events, many investment houses were expecting several interest rate cuts by the US Federal Reserve across 2025 at the start of this year. The latest US CPI inflation report was better than expected, and Trump has personally been pressuring the Fed to cut rates.

Lower interest rates encourage investors to take on more risk. With traditional assets offering lower yields, many are turning to cryptocurrencies, which have higher return potential, increasing demand for Bitcoin. Additionally, rate cuts can weaken the US dollar, which affects dollar-linked stablecoins and further influences the crypto market.

Increased liquidity in the financial system could flow into assets like Bitcoin as investors seek higher returns. For example, in June 2019, following rate cuts, Bitcoin surged by 490%, showing its growth potential in a low-interest-rate environment.

What to Expect in the Future: Forecasts

On the weekly logarithmic chart, Bitcoin continues to follow a long-term trendline and has recently rebounded from it—an encouraging technical signal. With the initial tariff-easing talks with Japan on April 16 having seemingly progressed well, there’s growing anticipation that tensions in the trade war could begin to ease. Should that happen, crypto markets may respond positively, potentially driving Bitcoin toward the nearest ATH target of around $100,000, which also aligns with the 2.618 Fibonacci level.

If monetary policy also shifts toward easing, allowing more liquidity to enter risk-on markets, Bitcoin could see further upside, possibly reaching $150,000—the 4.236 Fibonacci level.

A similar structure is forming in the altcoin market. The total market cap of altcoins is currently moving within a descending channel and may dip to around $810 billion before staging a rebound. From there, a full-scale crypto rally could push the altcoin market cap back to its previous ATH of approximately $1.62 trillion.

Conclusion

Historical trends indicate a strong recovery from previous downturns in bitcoin price driven by macroevents. Despite ongoing trade wars and macroeconomic pressures, bitcoin's resilience, combined with growing institutional support and its role as a safe haven asset, can ensure its long-term growth. A potential rate cut by the US Federal Reserve could increase liquidity and stimulate demand for bitcoin, as it has in past cycles, could make it a promising asset in the future when economic conditions stabilize.

This article is only for informational purposes and only reflects the opinion of its writer. It does not reflect the opinion of CoinGecko. Users are advised to do their own research before undertaking any investment.