The crypto market saw sharp gains, with XRP and Dogecoin surging 20% before reversing course as fresh trade tensions between the U.S. and China dented investor sentiment. Bitcoin (BTC) and Ethereum (ETH) initially climbed nearly 4%, while Solana (SOL) and Cardano (ADA) gained around 3%. However, as China announced retaliatory tariffs on the U.S., the broader crypto rally lost momentum.

U.S.-China Trade War Hits Risk Assets

The volatility was triggered by former U.S. President Donald Trump‘s decision to impose tariffs on imports from Canada, Mexico, and China. This move led to a steep drop in both equities and cryptocurrencies, reinforcing concerns about risk assets.

Ben El-Baz, Managing Director of HashKey Global, noted that the tariff conflict could dampen the positive sentiment that has fueled crypto’s bull run over the past year. “The damage from the tariffs could still be made temporary if more crypto-friendly policies in the U.S. are set in motion,” he told CoinDesk.

Crypto as a Risk Asset

Despite Bitcoin being considered “digital gold” by some, Min Jung, a research analyst at Prestro Research, pointed out that it still trades like a risk asset. “China’s retaliatory 10% tariff on the U.S. is pressuring crypto, much like other global risk assets such as equities,” Jung said.

Monday’s market turbulence presented a “buy-the-dip” opportunity, with traders taking advantage of a $2.2 billion liquidation event. However, market participants remain uncertain about whether this move signals a prolonged trade conflict or is merely a negotiation tactic.

What’s Next for Crypto?

With heightened volatility likely to persist, the crypto market remains on edge. Analysts are closely watching further developments in the U.S.-China trade dispute, as any escalation could lead to more uncertainty for digital assets. Meanwhile, some investors are shifting to stablecoins as a hedge against economic instability.

While short-term reactions may appear exaggerated, the long-term outlook for crypto hinges on geopolitical developments and potential policy shifts in the U.S. If more pro-crypto measures are introduced, it could counterbalance the negative impact of tariffs and reignite bullish momentum in the market.