Tariffs: The "Hidden Pump" Causing Stagnation in the Crypto Market in 2025-2026

When investors struggled to understand why the crypto market entered a prolonged sideways and sluggish phase after the October crash in 2025, data from the Kiel Institute for the World Economy in Germany revealed a neglected key clue: up to 96% of U.S. tariff costs are ultimately borne by consumers and businesses within the United States. This amounts to a massive and invisible “tax” system quietly draining liquidity from the market.

Market Pulse: Reviewing 2025, How Tariffs Dominated the Crypto Market’s Heartbeat

To understand the current stagnation, one must look back at the turbulence of the past year. In 2025, the Trump administration’s tariff policies became one of the most significant macro narratives in the crypto market, causing volatility comparable to major technological shifts or regulatory events. Unlike conventional economic data, tariff announcements often come unexpectedly, directly impacting global growth and trade expectations, and quickly transmitting to the highly liquidity-sensitive crypto markets.

Key tariff events and market impacts in 2025:

The market’s response pattern clearly demonstrates a logic: bad news triggers sell-offs, policy easing prompts rebounds. However, the October “billion-dollar liquidation storm” was particularly destructive, with effects lasting to this day, profoundly altering market structure.

Transmission Mechanism: How Tariffs Drain “Liquidity Fuel” from the Crypto Market

The rise of the crypto market depends on abundant global “discretionary liquidity.” When households and businesses are optimistic about the future and hold idle capital, some funds flow into crypto assets seeking higher returns. Tariff policies, through a complex yet direct transmission chain, erode this liquidity.

First, tariffs directly increase import costs, primarily absorbed domestically. Studies show that nearly 200 billion USD in tariffs levied from 2024 to 2025 are borne by U.S. consumers and importers. This acts like a slowly effective consumption tax, gradually squeezing corporate profits and household disposable income.

Second, stagflation risks suppress central bank policy space. Tariffs also bring upward pressure on inflation and downward pressure on growth. Under this “stagflation” cloud, Fed and other central banks face dilemmas, forced to maintain relatively tight policies and delay rate cuts. This fundamentally limits the expansion of global liquidity.

Finally, risk appetite remains persistently suppressed. Uncertain trade prospects lead enterprises and investors to adopt a conservative stance. Funds prefer holding cash or short-term government bonds and other safe assets rather than high-risk assets like Bitcoin. The market shifts from growth pursuit to risk avoidance.

The combination of these factors results in a continuous reduction of “fuel” flowing into the crypto market. It’s not a lack of confidence but a shortage of funds. This is why, after October, the market neither collapsed nor rebounded effectively, falling into a “liquidity plateau” at its core.

Structural Changes: Liquidity Concentration and the “Short-lived Spring” of Altcoins

The macro uncertainty brought by the tariff environment has profoundly changed internal capital behavior in the crypto market. Wintermute’s 2025 review report highlights a significant structural shift: liquidity is unprecedentedly concentrated in a very few top assets. The traditional “Bitcoin → Ethereum → Major Altcoins → Small Altcoins” cyclical rotation pattern did not effectively occur in 2025.

Capital is highly concentrated in BTC, ETH, and a handful of large-cap tokens. This concentration is driven mainly by two emerging forces: spot ETFs and the Digital Asset Treasury (DATs). Their investment scope remains primarily in mainstream assets, resulting in new institutional funds trickling in but not irrigating the entire ecosystem.

This layered liquidity structure has deep impacts:

• Altcoin rallies become short-lived: Compared to the 45-60 day typical altcoin bull markets of 2022-2024, the median duration of altcoin rallies in 2025 plummeted to about 20 days. Even with new narratives emerging, sustainability is difficult.
• Meme coin hype wanes: The total market cap of meme coins fell sharply after Q1 and failed to break key resistance levels, making it hard for local hot spots to reverse long-term trends.

This explains why the overall market feels stagnant—few assets are moving sideways, most are bleeding. A market lacking broad profit-making effects struggles to attract new funds, creating a negative feedback loop.

Current Dynamics: New Tariff Waves and Market Reactions in Early 2026

Entering 2026, the tariff narrative has not faded but become more complex due to new variables. In January 2026, markets shook again on news of President Trump proposing new tariffs against eight European countries. The proposal includes a 10% tariff starting February 1, with a possible increase to 25% in June. The news caused Bitcoin to drop 3.6%, briefly falling below $92,000, with Ethereum and Solana falling even more. This again confirms the market’s immediate sensitivity to tariff headlines.

Meanwhile, a potential “black swan” event is brewing: the U.S. Supreme Court is about to rule on the legality of “retaliatory tariffs.” If the ruling rejects the current policies, the U.S. government could face losing about $350 billion annually in tariff revenue and may need to refund companies. To fill the fiscal gap, the U.S. Treasury might accelerate debt issuance, which is not liquidity “easing” but could lead to rising bond yields, attracting funds away from stocks, crypto, and other risk assets, triggering cross-market chain liquidations.

Data Observation: Market Status and Outlook from Gate Data Perspective

As of January 20, 2026, according to Gate data, major crypto assets have maintained a consolidation pattern after recent corrections, with overall market volatility significantly reduced, resonating with the current macro uncertainty.

• Bitcoin and Ethereum: Bitcoin is around $92,062.8, down 0.69% in 24 hours; Ethereum at $3,172.1, down 1.27%. Both still dominate in market cap and share, but short-term volatility has decreased, reflecting a temporary balance of bullish and bearish forces before macro variables clarify further, with overall risk appetite cautious.
• Altcoins and Meme Coins: Compared to mainstream assets, trading activity remains weak, with volume unable to expand effectively, again highlighting the structural liquidity concentration in top assets. In the absence of clear trends and incremental funds, market capital tends to stay in high-liquidity assets like Bitcoin and Ethereum to reduce short-term volatility risks.

From a market structure perspective, the three potential recovery paths highlighted by Wintermute—broader institutional exposure, strong rebounds of major assets, or retail attention returning to crypto—are all closely tied to macro liquidity conditions.

Recent analyses, including from U.S. banks, suggest that persistent liquidity tightening may eventually force the Fed to loosen, and Bitcoin, being most sensitive to liquidity, could be the first to reflect such policy shifts.

Rational Response: Survival Strategies in an Uncertain Market

In the face of macro uncertainty woven by tariff policies, investors need to adjust strategies to adapt to the new environment.

First, prioritize risk management. In the face of high volatility and potential black swan events (like Supreme Court rulings), reducing leverage and maintaining sufficient margin buffers are key to avoiding forced liquidations like those in October 2025.

Second, understand market logic at different stages. During the initial “risk-off” triggered by tariff panic, cash and short-term U.S. Treasuries may be more defensive than Bitcoin. When markets show clear policy easing signals and overreact, crypto assets often demonstrate strong resilience.

Finally, stay focused on core signals. Investors should closely monitor: breakthroughs in U.S. long-term bond yields, key support/resistance levels of Bitcoin, and key announcements from the U.S. Trade Representative (USTR).

When the tide of global trade shifts due to tariff policies, no ship can sail unscathed, and the crypto market is no exception. From White House press releases to Supreme Court rulings, every statement injects volatility. The crypto market is no longer just a testing ground for technology; it has become a mirror of global liquidity, geopolitical struggles, and macroeconomic battles. The answer to market stagnation is not in candlestick charts but in the words between trade data, fiscal reports, and central bank meeting minutes.