Bitcoin hit by a deep freeze… breaks below KRW 120 million amid a confluence of headwinds

Down 17% in two weeks… lowest in nine months

Trump tariff threats, geopolitical risks

Even the nomination of a 'soft dove'—Kevin Warsh—as Fed chair

Cold water on liquidity and rate-cut hopes

$4.8 billion in institutional outflows over three months

Some say: "No longer a hedge"

Bitcoin has struggled to shake off weakness so far this year. After trading in the KRW 140 million range domestically as recently as mid-last month, bitcoin fell to below KRW 120 million toward the end of last month. With geopolitical jitters rising on the back of repeated U.S. trade threats by President Donald Trump, institutional inflows that drove last year’s rally have turned into net outflows.

In particular, analysts say the risk-off tone across bitcoin and other risk assets was exacerbated by fading expectations for rate cuts after Trump nominated former Federal Reserve (Fed) governor Kevin Warsh as a candidate for the next Fed chair. As forecasts grow that the pace of declines in U.S. policy rates will also fall short of investor expectations, bearish views on bitcoin are intensifying.

◇Bitcoin logs lowest level in nine months

According to South Korean cryptocurrency exchange Upbit on the 3rd, bitcoin traded at around KRW 119.10 million at about 11 a.m. on the 30th of last month. It was the first time in about nine months—since April 11 last year—that bitcoin fell below KRW 120 million.

Bitcoin had been rising since the start of the year through mid-last month. It opened the year at KRW 128.06 million on Jan. 1 and climbed about 12% over two weeks to KRW 142.95 million at 6 a.m. on Jan. 15. But it then slid 16.7% over the following 15 days, dropping into the KRW 110 million range.

The biggest driver of the recent decline is widely seen as geopolitical uncertainty spreading across countries. Each time concerns over a broader trade dispute flared following Trump’s abrupt tariff threats, risk-asset sentiment froze, triggering repeated sharp drops in bitcoin. The so-called “Greenland situation” is a case in point. Bitcoin was trading at KRW 141.20 million in the local market as recently as 8 a.m. on the 19th of last month. But after media reports said the European Union (EU) was preparing retaliatory tariffs worth KRW 159 trillion in response to U.S. moves to pursue annexation of Danish territory Greenland, bitcoin fell to KRW 137 million at 10 a.m.—roughly two hours later. As fears of an escalating trade dispute grew, prices were pushed down to KRW 130 million by 2 a.m. on the 22nd.

After Trump said the U.S. would not deploy military force in Greenland, bitcoin rebounded to the KRW 133 million range, but the recovery did not last. Instead, losses widened on the 26th, sending bitcoin below KRW 130 million in the local market.

Trade friction between the U.S. and Canada also weighed heavily. On the 25th of last month, Trump said he would impose a 100% tariff on all imports from Canada, arguing that a deal lowering tariffs on Chinese goods could allow a large influx of cheap Chinese products into the U.S. via Canada. As news of U.S. tariff threats against Canada spread, bitcoin slumped into the KRW 120 million range domestically.

◇Institutional money also turns to net outflows

Another factor pressuring bitcoin last month, analysts say, was growing concern that liquidity conditions would tighten for the crypto market as the U.S. slows the pace of rate cuts. On the 28th of last month (local time), the Fed held its policy rate steady at 3.5–3.75%. It marked the first pause since July last year for the Fed, which had been cutting rates at every Federal Open Market Committee (FOMC) meeting since September last year.

In addition, market interpretation spread that the policy stance could tilt more toward tightening than easing after Trump nominated former Fed governor Kevin Warsh as a candidate for the next Fed chair. Warsh is viewed as relatively conservative on inflation management. As a result, expectations have grown that the pace of rate cuts will not meet investor hopes.

With monetary policy becoming less supportive for crypto, bitcoin’s weakness has also been influenced by a recent stall in U.S. virtual-asset legislative discussions that had previously been seen as a positive catalyst. The “Clarity bill,” designed to establish a regulatory framework for cryptocurrencies in the U.S., has run into opposition from crypto businesses such as Coinbase, fueling expectations that passage within the first half of this year is effectively unlikely.

Institutional money that helped propel last year’s bitcoin rally is also exiting the crypto market. According to Bloomberg, U.S.-listed spot bitcoin exchange-traded funds (ETFs) posted net outflows for a third straight month through last month. The amount withdrawn over the period totaled about $4.8 billion. Net outflows on the 29th of last month alone ($817.9 million) were the largest in three months since Nov. 20 last year.

Alex Kuptsikevich, chief market analyst at FxPro, said, "Cryptocurrencies are no longer seen as an alternative to fiat money or as a hedge against irresponsible fiscal policies in major countries," adding, "Rather, they are seen as a financing tool to temporarily build positions in gold and silver."

By Jeong Eui-jin justjin@hankyung.com