Donald Trump’s threat to impose new 100pc 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) was wiped off the value of the crypto market in a span of less than 24 hours after Mr Trump late on Friday promised to impose steep new levies on Chinese imports within weeks.
It is understood that the Bank of England is closely monitoring events in line with normal practice, ahead of what is expected to be a turbulent opening for Asian markets on Sunday night. The Bank declined to comment but City traders are on alert for panic selling, with futures markets already signalling steep falls of around 6pc.
Traders using borrowed money to bet on Bitcoin and other digital currencies lost a record $19bn on Friday night. The scale of the losses is more than double the next biggest single-day loss in 2021, when the market took an $8.5bn hit.
Unlike traditional financial markets, cryptocurrency trades throughout the week and Mr Trump’s threat triggered a rush of heavy selling lasting into the weekend. The price of Bitcoin, by far the biggest cryptocurrency, tumbled by more than 10pc on Friday. On Saturday it relatively stabilised to fall a further 5.9pc to £83,838.
The hardest-hit speculators had used borrowed money to bet on price moves, in what is known as leveraged trading. Sharp slumps in the price of digital currencies triggered crushing losses on these trades as positions were wiped out.
In a sign of the possible human toll of the crash, a prominent Ukrainian crypto blogger died by suspected suicide on Saturday.
Kyiv Police said a 32-year-old crypto entrepreneur was found dead in his car from a gunshot wound. In a post on their official Telegram channel, police said he had told relatives 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, a 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 that have multimillion-dollar portfolios get wiped out by this.”
Some exchanges struggled to handle the chaos. Binance was forced to apologise for “intermittent delays or display issues” amid “heavy market activity”.
Experts raised suspicions about possible insider trading after several anonymous accounts made almost $200m by betting on price falls less than an hour before the tariff announcement.
It has sparked speculation that could not be substantiated that someone had prior knowledge of the US president’s announcement and used that to profit from the crash.
Joshua de Vos of CoinDesk, an industry data provider and publication, said: “While there is no conclusive evidence of insider trading, the wallet activity shows strong, directional conviction.
“The timing and scale of the positions opened on October 10, immediately prior to the market-wide liquidation, does raise suspicion of information asymmetry.”
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The White House did not respond to requests for comment.
Mr Trump reignited his trade war with China against the backdrop of global markets already nervous about a dotcom-style bubble in technology stocks inflated by exuberance about artificial intelligence. In the wake of two chaotic bankruptcies in the US there are also fears that the $3tn private credit market, also known as “shadow banking”, may be heading for trouble as a result of weak oversight.
The US acted after Beijing last week announced strict export controls on any products anywhere in the world that contain rare earth minerals sourced from its mines. The rules affect everything from cars to missiles and solar panels, marking an extraordinary power grab by Beijing.
Mr Trump said it was evidence that China was becoming “very hostile” and was seeking to “make life difficult for virtually every country in the world”.
The US already imposes 30pc tariffs on Chinese imports, meaning the latest threat would take levies to 130pc. Mr Trump has promised to impose the fresh tariffs by Nov 1 and possibly sooner.
Nicolas Bickel, head of investment at Edmond de Rothschild, said the tariff threat was “clearly unexpected” by the market.
“If these 100pc tariffs go ahead, they will be around 60pc higher than the previous average tariffs on Chinese goods,” he said.
Chris Beauchamp, an analyst at IG, said the stock market was “set up for a potentially volatile Monday open”.
Fears about stock market chaos have been heightened by pre-existing concerns about a possible bubble in AI.
The Bank of England last week warned that overvalued tech stocks could pose a “material” danger to Britain’s economy. Jamie Dimon, the chief executive of JP Morgan, told the BBC this week that he was “far more worried than others” about the prospects of a “sharp correction” in stock markets, saying that valuations “appear stretched”.
Any stock market crash also threatens to expose the $3tn market for private debt. This lightly-regulated “shadow banking” market has come under intense scrutiny in recent weeks following the collapse of two US companies that were heavily reliant on this form of funding.
First Brands, an Ohio-based car parts supplier, collapsed with liabilities of $11.6bn last month. Tricolour, the third largest used car retailer in Texas and California, filed for bankruptcy protection in September owing more than $1bn.
Both were heavily backed by the private credit sector, where lightly regulated money managers lend to companies rather than banks. This corner of the market has expanded tremendously in recent years to become a $3tn industry.
The twin collapses have raised questions about how accurately the private equity companies that extend these loans are accounting for them and the levels of due diligence in the sector. Deutsche Bank has raised concerns that First Brands could be a “canary in the mine”.
Shares in Apollo, Blackstone, KKR and Ares, the investment giants that have pioneered private credit, fell by an average of 4.5pc on Friday, leaving them down around 18pc over the last month.
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