The United States already imposes 30 percent tariffs on Chinese imports, meaning Donald Trump’s latest threat would take taxes to 130 percent – Shawn Thew/Pool/EPA/Shutterstock
Donald Trump’s threat to impose new 100% tariffs on China has triggered one of the biggest cryptocurrency crashes in history and stoked fears of chaos in global markets next week.
Around $400bn (£300bn) disappeared from the value of the cryptocurrency market in less than 24 hours after Trump promised on Friday night to impose new high taxes on Chinese imports within weeks.
The Bank of England is understood to be closely monitoring developments in line with usual practice, ahead of what is expected to be a turbulent opening for Asian markets on Sunday evening. The Bank declined to comment, but City traders are on alert for possible panic selling, with futures markets already indicating steep declines of around 6 percent.
Traders who used borrowed money to bet on Bitcoin and other digital currencies lost a record $19 billion on Friday night. The magnitude of the losses is more than double the next largest single-day loss in 2021, when the market took an $8.5 billion hit.
Unlike traditional financial markets, cryptocurrency transactions throughout the week and Trump’s threat triggered a wave of heavy selling that lasted into the weekend. The price of Bitcoin, by far the largest cryptocurrency, fell more than 10 percent on Friday. It stabilized relatively on Saturday and fell another 5.9% to £83,838.
The most affected speculators had used borrowed money to bet on price movements, in what is known as leveraged trading. Sharp drops in the price of digital currencies led to crushing losses on these trades as positions were eliminated.
In a sign of the potential human toll of the accident, a prominent Ukrainian crypto blogger died by suspected suicide on Saturday.
kyiv police said a 32-year-old crypto businessman was found dead in his car from a gunshot wound. In a post on his official Telegram channel, police said he had told his relatives that he was depressed “due to existing financial difficulties.”
He was named locally as Kostyantyn Ganich, who goes by Kostya Kudo online. A post on his Telegram channel, which provides cryptocurrency advice to tens of thousands, said he had “tragically passed away.”
Marcus Sotiriou, crypto analyst and partner at Impact Fundry, said: “A lot of people will have been hurt by this crash. A lot of people will have been over-leveraged. I’ve seen a lot of traders who have multi-million dollar portfolios get wiped out by this.”
Some exchanges struggled to handle the chaos. Binance was forced to apologize for “intermittent delays or display issues” amid “strong market activity.”
Experts raised suspicions about possible insider trading after several anonymous accounts made nearly $200 million betting on price drops less than an hour before the rates were announced.
It has sparked unsubstantiated speculation that someone had prior knowledge of the US president’s announcement and used it to profit from the collapse.
Joshua de Vos of CoinDesk, an industry publication and data provider, said: “While there is no conclusive evidence of insider trading, wallet activity shows strong and directional conviction.
“The timing and scale of the positions opened on October 10, immediately before the market-wide liquidation, raise suspicions of information asymmetry.”
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1210 Cryptocurrency Crash
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The White House did not respond to requests for comment.
Trump reignited his trade war with China against a backdrop of global markets already nervous about a dot-com bubble in technology stocks inflated by exuberance over artificial intelligence. In the wake of two chaotic bankruptcies in the United States, there are also fears that the $3 trillion private credit market, also known as “shadow banking,” could be headed for trouble as a result of poor oversight.
The United States acted after Beijing last week announced strict export controls on any products anywhere in the world containing rare earth minerals from its mines. The rules affect everything from cars to missiles to solar panels, marking an extraordinary power grab by Beijing.
Trump said it was evidence that China was becoming “very hostile” and seeking to “make life difficult for virtually every country in the world.”
The United States already imposes 30 percent tariffs on Chinese imports, meaning the latest threat would take the levies to 130 percent. Trump has promised to impose new tariffs by Nov. 1 and possibly sooner.
Nicolas Bickel, chief investment officer at Edmond de Rothschild, said the tariff threat was “clearly unexpected” by the market.
“If these 100 percent tariffs go ahead, they will be about 60 percent higher than the previous average tariffs on Chinese goods,” he said.
IG analyst Chris Beauchamp said the stock market was “poised for a potentially volatile Monday open.”
Fears about stock market chaos have been heightened by pre-existing concerns about a potential bubble in AI.
Last week, the Bank of England warned that overvalued tech stocks could pose a “material” danger to the British economy. Jamie Dimon, chief executive of JP Morgan, told the BBC this week that he was “much more concerned than others” about the prospects of a “sharp correction” in stock markets, saying valuations “seem overblown”.
Any stock market decline also threatens to expose the $3 trillion private debt market. This loosely regulated “shadow banking” market has come under intense scrutiny in recent weeks following the collapse of two US companies that relied heavily on this form of financing.
First Brands, an Ohio-based auto parts supplier, collapsed with liabilities of $11.6 billion last month. Tricolor, the third largest used car retailer in Texas and California, filed for bankruptcy in September owing more than $1 billion.
Both were heavily backed by the private lending sector, where lightly regulated money managers lend to companies rather than banks. This corner of the market has expanded enormously in recent years to become a $3 trillion industry.
The two collapses have raised questions about how accurately the private equity firms making these loans are accounting for them and the levels of due diligence in the sector. Deutsche Bank has expressed concern that First Brands could be a “canary in the mine.”
Shares of Apollo, Blackstone, KKR and Ares, the investment giants that have pioneered private credit, fell an average of 4.5 percent on Friday, leaving them down about 18 percent in the past month.
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