ETHA Plunges, IBIT Rebounds Amid Tariff Volatility
Markets recovered after Trump delayed Mexican tariffs by a month.
Ethereum led a deep cryptocurrency selloff this morning as the iShares Ethereum Trust ETF (ETHA) plunged 22% amid the launch of President Trump’s tariffs on Canada, Mexico and China.
Companies with significant cryptocurrency exposure, such as MicroStrategy Inc. and Coinbase Global Inc., also experienced initial declines but pared their losses as the market stabilized.
By mid-afternoon, ETHA was still down 17% for the day but bitcoin staged a massive comeback as BTC rose more than $9,000 off its morning low, coinciding with President Trump's decision to delay the implementation of the Mexican tariffs by a month. This, in turn, provided a temporary boost to investor confidence.
Following the initial decline, the iShares Bitcoin Trust ETF (IBIT) climbed back to the green, rising more than 7% off its morning low.
The imposition of 25% tariffs on Mexican and most Canadian imports, along with a 10% tariff on Chinese goods, has heightened fears of a trade war, leading investors to retreat from riskier assets, including cryptocurrencies. Analysts suggest that these trade policies could fuel volatility across various markets, with cryptocurrencies being particularly affected due to their speculative nature.
The ProShares VIX Short-Term Futures ETF (VIXY), which tracks short-term VIX futures and is a widely followed fear gauge, spiked nearly 10% in morning trading but retreated to +2% in afternoon trading.
Safehaven assets also jumped this morning as gold reached an all-time high, surpassing $2,800 for the first time, as funds like the SPDR Gold Shares ETF (GLD) followed the precious metal higher.
For further reading: Trump Tariffs: The Potential ETF Winners and Losers
ETHA, Crypto ETF Volatility: A Sign of What’s to Come?
Today's seemingly overblown market reaction to new tariff announcements may offer key insights into how future market movements could unfold as trade policies evolve. Here are several takeaways:
Market Sensitivity to Trade Policy
The sharp drop in risk assets, including equities and cryptocurrencies, suggests that markets are highly reactive to tariff-related uncertainty. If similar tariff escalations occur, investors may continue to overcorrect in the short term before reassessing fundamentals.
Flight to Safety & Sector Rotation
The initial selloff in risk assets and potential rebound in safe-haven assets (such as Treasuries, gold, or defensive sectors) suggests that future tariff fears could trigger similar rotations. If markets anticipate prolonged trade tensions, defensive stocks (utilities, consumer staples, and healthcare) may outperform, while trade-sensitive sectors (tech, industrials and emerging markets) could see volatility.
Algorithmic & Momentum-Driven Selling
Today’s rapid price movements imply that algorithmic trading and momentum strategies may be amplifying volatility. Future tariff headlines could trigger knee-jerk selloffs, creating buying opportunities for long-term investors if fundamentals remain intact.
Inflation & Interest Rate Expectations
If tariffs persist and contribute to higher consumer prices, the market may adjust its expectations for Fed policy. A strong reaction today could hint at increased market sensitivity to inflation surprises, impacting bond yields and rate-cut expectations.
Today’s wild market swings suggest that future tariff developments could lead to repeated bouts of volatility, creating short-term uncertainty but also tactical buying opportunities. Investors should monitor sentiment-driven overreactions for potential buying opportunities in fundamentally strong assets.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in ETFs involves risks, and investors should carefully consider their investment objectives and risk tolerance before making any investment decisions.
At the time of writing, Kent Thune held long positions in ETHA and IBIT.