#SouthKoreaCryptoPolicy After the rapprochement between America and China, is the crypto market in danger? Will liquidity exit?
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 create a new economic advisory mechanism, meaning they are trying to create a long-term understanding instead of remaining in a trade war spiral.
This issue immediately reflected on market movements.
America has reduced tariffs on Chinese imports from 145% to 30%. China responded with a similar reduction from 125% to 10%. The result is that global markets have started to stabilize, and people are returning to focus on traditional exchanges again.
How does this affect the crypto market?
Here comes the crucial point: will this global stability cause liquidity to exit crypto and return to exchanges? This could actually happen... and if it does, it will have a clear and dangerous impact, especially on high-risk assets in crypto.
Let's rewind a bit and rearrange the events.
The crypto market is currently experiencing a strong recovery. The liquidity that 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? Here is the turning point.
Will liquidity really exit?
The situation is not black and white. But let me simplify it for you.
There could be a partial withdrawal, and this is the closest scenario right now.
The liquidity that entered crypto quickly for the purpose of fast profit will start to exit gradually. The beginning will be from small projects, meme coins, and coins that have no real use. The market will not collapse, but there will be a significant and painful correction for some coins.
Total withdrawal, which is a low probability in the case of a sudden rise in exchanges.
If a Bull Run occurs in global markets and institutions start to liquidate their positions in crypto and transfer them to stocks, the market could lose 30-40% of its value in weeks.
Which coins will be most affected?
First, meme coins like $PEPE, $FLOKI, $DOGE, and $WIF are mostly based on trends and social media; if liquidity exits, the first to fall will do so quickly, and the decline could reach 40-50% in a very short time.
Secondly: altcoins without real value, any project without a strong team or without a real solution to a market problem will be the first candidates to fall.
Thirdly, decentralized finance (DeFi) protocols like $AAVE, $MKR R, and $SNX will be affected in one case: if the total value locked (TVL) starts to decline, then the protocol itself will be affected and the price will drop accordingly.
Fourthly, Layer 1s like $SOL, $AVAX, and $ADA are strong coins, but a portion of them comes from speculation, so a medium correction could occur, 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 part 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 moderate, not total, liquidity withdrawal.
The situation in numbers now.
The market cap of crypto is about $3.34 trillion, and Bitcoin's dominance is 63.8%. The price of Bitcoin is around $94,000.
So what do we expect next?
If there is a partial withdrawal of liquidity: the market will drop a bit but will stabilize again, and if there is a violent withdrawal, the market could drop to a market cap of around $2.2 - $2.5 trillion, and smaller and speculative coins will temporarily evaporate from the market.
The calm between America and China could be beneficial for global markets but dangerous for crypto, which relies on fast liquidity flows. Those holding speculative coins or meme coins need to be cautious and start reviewing their portfolios. Because if liquidity exits, it won't exit all at once but will trickle out... and this means we need to monitor the market day by day and understand where the money is coming from and going.
And this is just an analysis and opinion, not financial advice 😊👻
