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Why Is Bitcoin Dropping

Oleg Tkachenko
Written by:
Oleg Tkachenko
Chinmay Soni
Reviewed by:
Chinmay Soni
Mirjan Hipolito
Fact-checked by:
Mirjan Hipolito
Updated:
February 04, 2025

Editorial Note: While we adhere to strict Editorial Integrity, this post may contain references to products from our partners. Here's an explanation for How We Make Money. None of the data and information on this webpage constitutes investment advice according to our Disclaimer.

The crypto market crash was closely tied to Trump's renewed trade war. As tariffs hit global markets, investors initially flocked to the U.S. dollar as a safe-haven asset, leading to massive sell-offs in riskier investments like crypto. Higher interest rates, driven by inflation concerns from rising tariffs, further squeezed liquidity, forcing leveraged traders into liquidations. However, the market sentiment has begun shifting as investors spot buying opportunities following the steep correction.

The cryptocurrency market has witnessed a staggering collapse, with billions wiped out in mere hours. Analysts point to Donald Trump’s renewed trade tensions with major economies like Canada, Mexico, and China as a primary catalyst. These geopolitical counters have triggered a rush to the US dollar, a traditional safe-haven asset, prompting investors to unload riskier holdings, including cryptocurrencies.

Rising interest rates, fueled by inflation fears tied to escalating tariffs, have further drained market liquidity. This squeeze has left leveraged traders exposed, causing a wave of forced liquidations. As the dollar strengthens and institutional investors retreat, the sell-off has only intensified.

The fallout has hit major cryptocurrencies like Bitcoin, Ethereum, and Solana, along with meme coins such as Dogecoin and Shiba Inu, leading to over $2.2 billion in liquidations within a single day. As the dust settles and fears surrounding the trade war begin to ease, investors are gradually returning to crypto markets. Many see the recent downturn as a buying opportunity, with Bitcoin, Ethereum, and other major assets rebounding from their lows. Additionally, with expectations that central banks may slow down rate hikes and the dollar showing signs of stabilization, liquidity is beginning to return to the market. This renewed optimism has led to a surge in accumulation, suggesting that crypto could be on the path to recovery despite lingering volatility.

Impact of the Trump War on the crypto market

Kara Crypto Ideas analysisKara Crypto Ideas analysis

In a recent market analysis shared on Telegram, crypto analyst Kara Crypto Ideas highlighted the sharp decline in cryptocurrency prices following renewed trade war tensions sparked by former U.S. President Donald Trump’s announcement of new tariffs. This development triggered widespread panic in the market, leading to a massive sell-off across major cryptocurrencies, including Bitcoin, Ethereum, Solana, and meme coins like Dogecoin and Shiba Inu.

According to Kara Crypto Ideas, Bitcoin plummeted to a three-week low of approximately $91,200 before rebounding to around $95,300, reflecting a 7% drop in just a short period. Ethereum took a more severe hit, dropping 26% to about $2,130 before recovering to $2,600. This highlights the extreme volatility and fragile investor sentiment in the current crypto market.

The analysis suggests that Trump’s tariff announcement, which targeted imports from Mexico, Canada, and China, spooked investors and raised fears of a broader global trade war. This uncertainty led to a shift away from riskier assets like cryptocurrencies, as investors flocked to the U.S. dollar as a safer alternative. The liquidation crisis intensified as over $2 billion was wiped out in 24 hours, with Ethereum holders bearing the brunt — derivative markets alone saw over $1 billion in long positions getting liquidated.

The market shock underscores how macro-level geopolitical factors can exert immense pressure on digital assets, reinforcing the need for risk management and diversification in crypto trading strategies. Let’s take a look at how major cryptocurrencies fared during this liquidation frenzy:

Bitcoin (BTC)

Bitcoin tested the $90,000 level before slightly recovering. The fear of economic instability has caused investors to liquidate their holdings rapidly. The tightening of global economic conditions and the temporary strengthening of the U.S. dollar have exacerbated Bitcoin's decline.

BTC chart showing the sharp dropBTC chart showing the sharp drop

Ethereum (ETH)

Ethereum experienced a dramatic drop of up to 30% at one point, marking one of its steepest declines in recent history. Concerns about regulatory changes and global financial uncertainty have contributed to this plunge, with many DeFi projects facing liquidity issues.

ETH chart showing the significant declineETH chart showing the significant decline

Solana (SOL)

Solana faced a significant decline as well, with its price dropping sharply. The network's dependency on investor confidence made it vulnerable to market turbulence. Solana's ecosystem, heavily reliant on venture-backed projects, has been hit hard by the sell-off.

SOL chart illustrating the dropSOL chart illustrating the drop

Meme Coins: Dogecoin (DOGE) and Shiba Inu (SHIB)

Meme coins like DOGE and SHIB have suffered severely, reflecting the highly speculative nature of these assets. Their volatility has been exacerbated by the broader market downturn, with losses exceeding 35% in some cases.

DOGE chart showing sharp declinesDOGE chart showing sharp declines
SHIB chart showing sharp declinesSHIB chart showing sharp declines

Total crypto liquidations

The total liquidations have exceeded $2.2 billion, highlighting the scale of the market's reaction. According to Cointelegraph, this sharp decline is fueled by a combination of macroeconomic factors, including the strengthening of the U.S. dollar and rising global tensions.

Crypto market conditionCrypto market condition

Data from Coinpedia and Coingape suggest that leveraged positions were wiped out across major exchanges, with Bitcoin and Ethereum futures seeing the highest liquidations. This cascade effect has further deepened the sell-off, creating a feedback loop of panic selling.

The actual liquidations could be much higher

Ben Zhou's post on x.comBen Zhou's post on x.com

Ben Zhou, the CEO of Bybit, recently took to Twitter (X) to address concerns about the true scale of liquidations in the cryptocurrency market. He suggested that the actual liquidation total is significantly higher than what is being publicly reported. While the reported figure was around $2 billion, Zhou estimates the real number to be between $8 billion and $10 billion. His statement raises questions about how liquidation data is collected and displayed across different platforms.

Liquidation data shared by Ben Zhou source: x.comLiquidation data shared by Ben Zhou source: x.com

In his post, Zhou highlighted that Bybit's 24-hour liquidation total alone was $2.1 billion. However, on Coinglass, a popular liquidation tracking platform, Bybit’s recorded liquidations were only $333 million. This, he explained, is due to API limitations, meaning that Bybit’s system can only push out a limited amount of data per second. He also pointed out that other crypto exchanges likely follow similar practices, leading to a significant underreporting of the true liquidation volume in the market.

This revelation is crucial because liquidation events can have a major impact on the market. When traders using leverage (borrowed funds) fail to maintain required margins, their assets are automatically sold, creating a chain reaction that amplifies market crashes. If liquidation data is underreported, investors might underestimate market risks, leading to poor decision-making.

Ben Zhou shared this information on Twitter (X) via his handle @benbybit along with screenshots of Bybit's internal liquidation data, reinforcing his claim that the reported figures do not reflect the full extent of market liquidations.

Record crash as a combination of predictable economic reactions

Anton Kharitonov
Anton Kharitonov Chief Analytics Officer

I believe the recent market crash is a reactionary move driven by heightened geopolitical tensions, particularly the trade war declared by Donald Trump against Canada, Mexico, and China. The ripple effects of this conflict have spooked investors, leading to widespread liquidations and panic selling.

Bitcoin briefly tested the $90,000 mark before rebounding slightly, while most altcoins plummeted by over 20%. The meme coins — well, their performance speaks for itself, reflecting the extreme volatility inherent in speculative assets during times of uncertainty. Liquidations surpassed $2.2 billion within 24 hours, highlighting the magnitude of the market's response.

Market overviewMarket overview

In my view, this correction was expected. The temporary strengthening of the U.S. dollar, combined with escalating global tensions, naturally drives investors to offload riskier assets. However, I see no clear signs of an impending recession or crypto winter. The Federal Reserve's potential to resume interest rate cuts could provide the necessary liquidity to stabilize the markets in the near future.

For strategic investors, this dip presents a compelling opportunity to acquire quality altcoins at discounted prices. Historically, similar market downturns have been followed by strong recoveries. Just last September, Bitcoin dipped below $50,000, only to surge close to $100,000 in November. I anticipate a similar mid-term rebound this time, reinforcing the importance of maintaining a long-term perspective in volatile markets.

Conclusion

While the current market conditions are alarming, history shows that cryptocurrency markets are resilient. Investors should stay informed, avoid panic selling, and consider strategic investments during these downturns. The cyclical nature of crypto markets often presents opportunities amid crises.

FAQs

Why is crypto crashing?

The crash is primarily due to geopolitical tensions, economic uncertainty, and investor panic triggered by Donald Trump's trade war.

Why is Bitcoin dropping?

Bitcoin's decline is linked to broader market liquidations, the strengthening U.S. dollar, and fears of economic instability.

What are the current crypto market conditions?

The market is experiencing a sharp decline, with major cryptocurrencies losing 20-30% of their value and total liquidations surpassing $2.2 billion.

Should I buy or sell crypto now?

While it's essential to consider your risk tolerance, some experts view this as a buying opportunity for long-term gains, especially in altcoins.

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Team that worked on the article

Oleg Tkachenko
Oleg Tkachenko
Editor at Cryptocurrency & Blockchain Department

Oleg Tkachenko is an economic analyst and risk manager having more than 14 years of experience in working with systemically important banks, investment companies, and analytical platforms. He has been a Traders Union analyst since 2018.

Learn about our editorial policies
Chinmay Soni
Chinmay Soni
Head of Fact-Checking Department

Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data.

Mirjan Hipolito
Mirjan Hipolito
Cryptocurrency and stock expert

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets.

Glossary for novice traders
Cryptocurrency

Cryptocurrency is a type of digital or virtual currency that relies on cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies operate on decentralized networks, typically based on blockchain technology.

Bollinger Bands

Bollinger Bands (BBands) are a technical analysis tool that consists of three lines: a middle moving average and two outer bands that are typically set at a standard deviation away from the moving average. These bands help traders visualize potential price volatility and identify overbought or oversold conditions in the market.

Index

Index in trading is the measure of the performance of a group of stocks, which can include the assets and securities in it.

CFD

CFD is a contract between an investor/trader and seller that demonstrates that the trader will need to pay the price difference between the current value of the asset and its value at the time of contract to the seller.

Extra

Xetra is a German Stock Exchange trading system that the Frankfurt Stock Exchange operates. Deutsche Börse is the parent company of the Frankfurt Stock Exchange.

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