Cryptocurrency market plunges due to tariff shock, with emerging DEXs like Lighter also affected

Cryptocurrency markets on Monday experienced a significant sell-off following reports that the European Union is preparing retaliatory tariffs of €93 billion ($110 billion) in response to U.S. tariffs. Bitcoin dropped to approximately $85,000, breaking through a key support level, with ripple effects cascading across derivative exchanges like Lighter and the overall altcoin market.

Market Plunge: Bitcoin Breaks Support and Liquidity Drought

Bitcoin declined by about $7,500 since Sunday night, currently trading near $85,000. This drop has pushed it below the critical support level of $94,500 again, creating a precarious situation where it risks returning to the trading range of $85,000 to $94,500 that has persisted since mid-November.

Risk aversion driven by tariff concerns has caused European stocks and U.S. futures to fall, while gold and silver have hit new all-time highs—an unusual move. However, despite the narrative of Bitcoin as a “real asset,” it is behaving like a high-beta risk asset, with investors seeking store of value still favoring physical precious metals over digital assets.

Derivative Market Liquidation and Impact on Emerging Players Including Lighter

The sell-off resulted in approximately $815 million in liquidations across the entire crypto market, with $231 million related to Bitcoin and the rest impacting the altcoin sector. Due to margin shortages, around $800 million worth of leveraged long positions were forcibly liquidated within 24 hours, dealing a heavy blow to bullish traders.

Total open interest (OI) in crypto futures has decreased by over 2%, now standing at $138.14 billion. Notably, emerging derivative platforms like Lighter have seen significant declines during this adjustment phase. Lighter’s native token (LIT) continued to struggle on Monday, dropping about 4% since Sunday 23:00 UTC, raising concerns about the platform’s market position.

This decline coincides with HyperLiquid reclaiming the top spot in derivative trading rankings, following a decrease in user interest in Lighter after its December airdrop. In an environment where liquidity remains thin, emerging players are particularly vulnerable to large market swings.

Sector Performance Divergence: DeFi and Layer 1 Struggle

The altcoin market shows mixed fortunes. The CoinDesk 80 Index fell 4.64% over the past 24 hours, but DeFi tokens and Layer 1 protocol tokens experienced double-digit declines, while privacy coins found a rare bright spot.

DeFi tokens like ETHFI, ENA, and JUP plunged double digits overnight, while Solana (SOL) and Cardano (ADA) each declined about 6%. Conversely, privacy coin Monero (XMR) surged over 13% since Sunday 23:00 UTC, continuing its bullish trend this year.

Bitcoin’s open interest (OI) increased by 0.65% over 24 hours, while Ethereum’s OI remained flat. Other major tokens such as SOL, XRP, ADA, DOGE, SUI, and LTC saw OI decrease by 8% to 13%, indicating large capital outflows and risk-averse sentiment.

Volatility Indicators Warn of Market Sentiment

The 30-day implied (expected) volatility for BTC and ETH has not shown significant increases, suggesting traders may be underestimating potential large swings in the near future. However, the volatility spread between call and put options listed on Deribit for BTC remains negative across all timeframes, indicating persistent downward risk concerns. Similar patterns are observed for Ethereum.

Bitcoin’s order flow remains balanced between traders pursuing put spreads and call spreads, reflecting ongoing uncertainty and a lack of consensus among market participants.

Market Watchpoints: Reorganization of Emerging Platforms Including Lighter

This market correction is causing major shifts in the competitive landscape of derivative exchanges. The rise of HyperLiquid and the relative decline of Lighter highlight the fierce competition for liquidity and functionality. As mid-cap tokens underperform major cryptocurrencies, how emerging players like Lighter differentiate themselves will be closely watched.

In the process of recovering from external shocks like tariff concerns, the asset composition the market settles into will be a key factor in shaping the next trend.