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Bitcoin’s long-standing narrative as "digital gold" faced a severe setback this week as the cryptocurrency plummeted below $65,000 following the announcement of a sweeping 15% global tariff by the U.S. administration. While traditional gold surged more than 2.6% in response to the economic uncertainty, Bitcoin moved in lockstep with risk-on tech assets, triggering over $500 million in leveraged liquidations and erasing $2.22 trillion in market value since the October 2025 peak.
Key Points
- Bitcoin failed its primary test as a safe-haven asset, dropping 5% in two hours while physical gold crossed $5,200.
- U.S. President invoked Section 122 of the Trade Act of 1974 to impose 150-day emergency tariffs, bypassing a Supreme Court ruling that had previously restricted executive trade powers.
- Institutional flight is accelerating, with U.S. spot Bitcoin ETFs recording $3.8 billion in net outflows over five consecutive weeks.
- Major mining operations, including Bitdeer, have reached a point of total capitulation, liquidating 100% of their Bitcoin reserves to navigate the market downturn.
The Tariff Catalyst and Market Divergence
The market volatility stems from a rapid-fire legal and political escalation in Washington. On Friday, February 20, the U.S. Supreme Court ruled 6-3 in Learning Resources, Inc. v. Trump that prior tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were unconstitutional. However, the market’s relief rally was short-lived. The President immediately responded by invoking Section 122 of the Trade Act of 1974, a rarely used provision allowing for a 15% import surcharge to address international payment imbalances.
The reaction was immediate and punishing for crypto holders. Bitcoin fell from $67,600 to a low of $64,090 in less than 120 minutes. According to data from Coinglass, the move liquidated 136,000 traders and caused derivatives open interest to collapse from $38.3 billion to $19.5 billion. More significantly, the event highlighted a growing rift between Bitcoin and gold.
"For years, the core thesis of the industry has been that Bitcoin acts as a non-sovereign store of value. When traditional markets panic, Bitcoin is supposed to be the life raft. But on tariff day, that life raft sank."
While Bitcoin shed value, physical gold surged, creating a 6.27-point divergence between the two assets. As of today, one Bitcoin purchases only 13 ounces of gold, a staggering 62% decline from the 38 ounces it could purchase in December 2024.
Institutional Exodus and Miner Capitulation
The "smart money" has signaled a clear retreat from the crypto ecosystem. BlackRock’s IBIT alone saw $2.1 billion in exits over the last month, while Fidelity’s FBTC shed $954 million. This institutional de-risking is driven by a shift in Bitcoin's correlation profile; its link to the NASDAQ has swung from negative 0.68 to a highly positive 0.72, effectively reclassifying it as a high-beta tech play rather than an inflation hedge.
The Mining Squeeze
The pressure is not limited to Wall Street. Bitdeer, the largest publicly traded self-operating miner by hash rate, recently revealed it liquidated its entire reserve of 943.1 BTC. This "zero-balance" strategy reflects a broader trend of miners struggling to maintain operations amid falling prices and rising energy costs. Furthermore, liquidity is drying up; CryptoQuant reports that the 60-day market cap change for Tether (USDT) has contracted by billions, indicating that capital is exiting the crypto ecosystem entirely rather than sitting on the sidelines.
The Federal Reserve’s Inflation Trap
The macroeconomic backdrop offers little immediate comfort. The Core Personal Consumption Expenditures (PCE) index—the Federal Reserve's preferred inflation gauge—recently hit 3% year-over-year, well above the 2% target. Tariffs are historically inflationary, as companies typically pass import costs to consumers. This creates a "stagflation" trap: the Fed cannot easily cut interest rates to stimulate a slowing economy if inflation remains "sticky."
Consequently, the U.S. Dollar Index (DXY) remains strong at 97.8, and the 10-year Treasury yield is attracting capital away from risk assets. When hedge fund algorithms detect macro uncertainty, they sell Apple, Tesla, and Bitcoin ETFs simultaneously. This institutional integration has, ironically, stripped Bitcoin of the independence it once boasted.
Historical Context and the Path Forward
Despite the "terrifying" data, historical precedents suggest that the Bitcoin story is far from over. The Fear and Greed Index currently sits at 5 out of 100, a level of "extreme fear" not seen since the March 2020 liquidity crisis. Historically, such extreme sentiment has marked market bottoms.
Data from the last decade shows that Bitcoin has undergone nine corrections of 40% to 50%. It is currently 48% down from its $126,000 all-time high. In every previous instance, the asset has recovered to reach new highs within 9 to 14 months. Furthermore, Bitcoin’s fundamental scarcity remains intact; with a block reward of 3.125 BTC, its annual inflation rate of 1% is now lower than gold's 1.5% to 2%.
The immediate outlook depends on how the market absorbs the 150-day tariff window and whether the U.S. Treasury increases T-bill issuance to manage the national debt. While Bitcoin is currently failing its short-term safe-haven test, the long-term case for a decentralized, capped-supply asset remains relevant for those capable of weathering Wall Street’s algorithmic volatility. The coming months will determine if the current shakeout is the end of the "digital gold" era or merely the final capitulation before a new cycle begins.
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