America and China concluded high-level trade talks in Geneva, which for the first time had a "friendly tone" after a long period of tension, and they agreed to establish a new economic advisory mechanism, meaning they are trying to create a long-term understanding instead of remaining in a cycle of trade war.
This topic immediately reflected on the movement of the markets
America has reduced customs duties on Chinese imports from 145% to 30%. China responded with a similar reduction from 125% to 10%. The result is that global markets have begun to stabilize, and people are looking back at traditional stock exchanges.
How does this affect the crypto market?
Here comes the crucial point: will this global stability cause liquidity to exit crypto and return to the stock exchanges? This could indeed happen... and if it does, it will have a clear and dangerous impact, especially on high-risk assets in crypto.
Let's go back a bit and rearrange the events
The crypto market is currently experiencing a strong recovery; the liquidity that has entered was coming from financial institutions, individual investors, and hedge funds, all fleeing from inflation and high interest rates.
But after the new agreement between America and China and the beginning of signs of interest rate cuts in America, investors are thinking
Why should I bear the risk of crypto in the presence of economic stability and opportunities in the traditional market? This is the turning point.
Will liquidity really exit?
The situation is not black and white. But let me simplify it for you
A partial withdrawal is possible and this is the closest scenario currently
The liquidity that entered crypto quickly for the purpose of quick profit will start to exit in stages. The beginning will be from small projects, meme coins, and coins that have no real utility. The market will not collapse, but there will be a significant and painful correction for some coins.
Total withdrawal, and this is a weak possibility in the case of a sudden rise in stock exchanges
If a bull run happens in global markets and institutions start to liquidate their positions in crypto and shift to stocks, then the market could lose 30-40% of its value in weeks.
Which coins will be affected the most?
Firstly, meme coins like $PEPE and $FLOKI and $DOGE and $WIF are mostly trend-based and social media-driven. If liquidity exits, the first ones to fall will do so quickly, with the drop potentially reaching 40-50% in a very short time.
Secondly: altcoins that have no real value, i.e., any project without a strong team or without a real solution to a market problem, will be the first candidates for falling.
Thirdly, DeFi protocols like $AAVE, $MKR R, and $SNX will be affected in one case: if the total locked value (TVL) starts to decrease, then the protocol itself will be affected and the price will drop accordingly.
Fourthly, the Layer 1s like $SOL, $AVAX, and $ADA are strong coins but a percentage of them comes from speculation, so a medium correction could happen especially if liquidity shifts to Bitcoin.
And Bitcoin
BTC Bitcoin will be the most protected currency in this case because it is now considered a digital asset. If liquidity exits from altcoins, a large portion of it will return to Bitcoin as a store of value. This means we might find Bitcoin stable or even increasing while the rest of the market bleeds. And this is, of course, in cases of medium liquidity withdrawal, not total.
The situation in numbers right now
The market value of crypto is about 3.34 trillion, with Bitcoin's dominance at 63.8%. The price of Bitcoin is around 94,000 dollars.
So what can we expect moving forward?
If there is a partial liquidity withdrawal: the market will drop a bit but then stabilize, and if there is a violent withdrawal, the market could drop to a market value of about 2.2 - 2.5 trillion, and small speculative coins will temporarily vanish from the market.
