Crypto Market Downturn: Breaking Down the Last Week’s Chaos

Know the key factors behind the latest market movements!

The crypto market has experienced one of its most turbulent weeks: the Bybit hack, known as the largest in cryptocurrency history, shook investor confidence and triggered a sharp drop in digital asset prices. At the same time, regulatory changes in the U.S. brought a rare positive signal, causing the SEC — known for its strict stance on decentralized finance — to soften its approach toward companies like Coinbase and Robinhood.

As of the morning of Tuesday, February 25, the total market capitalization stood at $3.14 trillion, down 1.16% from last week. This decline reflects growing uncertainty among investors. However, the drop is not only due to recent events.

Over the past month, macroeconomic pressures, liquidity shifts, and market sentiment have driven high volatility in the crypto ecosystem.

In this article, I will explain the key factors behind the latest market movements. I will focus on the most important events of the past two weeks and analyze the key trends of the last month. If you want to understand what’s happening, keep reading.

Macroeconomic Trends

Global economic conditions have played a significant role in the crypto sell-off. In recent weeks, inflation data and interest rate policies have raised concerns: central banks like the U.S. Federal Reserve had been expected to continue easing policy but resurgent inflation fears have made them more cautious​. This has kept interest rates high, dampening appetite for riskier assets including cryptocurrencies: Investors are reacting to signals that borrowing costs will remain elevated, which historically puts downward pressure on speculative investments.

Broader market trends show a shift toward risk-off sentiment: fears of an economic slowdown and policy uncertainty (such as renewed tariff threats under the new U.S. administration) are spooking investors​.

Notably, the Trump administration’s talk of tariffs on trade partners (Mexico and Canada) has added to market jitters, these macro worries have not only hit crypto -high-growth tech stocks have also slumped- but crypto often feels the effect more acutely, risk aversion has risen with money flowing into safer havens at the expense of crypto holdings​.

Regulatory Developments

Regulatory news and uncertainties are another major factor in the downturn. In the United States, hopes for a crypto-friendly regime have been tempered by reality. Although President Trump struck a pro-Bitcoin tone, concrete support has lagged: for example, proposed state-level initiatives to adopt Bitcoin (such as state government Bitcoin reserves in Montana, North Dakota and Wyoming) were rejected by lawmakers, underscoring ongoing political caution​.

This reluctance to officially embrace crypto (even in supposedly crypto-friendly jurisdictions) has injected uncertainty. Additionally, Trump recently signed a crypto executive order that failed to address some of the bold ideas (like a national Bitcoin reserve), disappointing those who speculated on more aggressive adoption​.

Overall, U.S. regulators and legislators continue to send mixed signals; no harsh new bans emerged in the last month but neither have there been the positive breakthroughs bulls hoped for.

Image taken from Pixabay

In Europe, the implementation of new rules has had market impacts: the EU’s Markets in Crypto-Assets (MiCA) regulation fully came into effect at the end of 2024, bringing stricter requirements for crypto companies. Notably, some major exchanges even delisted certain stablecoins (like Tether’s USDT) for European users to comply with MiCA. This led to a drop in Tether’s market cap (its largest weekly decline in two years) as EU-based traders lost access on regulated platforms​, while experts noted this impact is likely confined to the EU region, it still rattled markets and fueled speculation about a broader crypto pullback​.

The message from Europe is clear: tighter oversight is here, prompting caution among crypto investors and businesses.

“Europe” Image taken from Pixabay

In Asia, regulatory changes were less prominent in this downturn but the region remains significant, no major new crackdowns hit in the past month, though China’s earlier bans still loom in the background of market sentiment.

On the other hand, some Asian financial hubs (like Hong Kong) have been moving toward a more open, regulated crypto market: a generally positive sign. Overall, the absence of positive regulatory catalysts and the presence of some restrictive actions (EU rules, U.S. policy hesitancy) have made traders wary.

“Hong Kong” Image taken from PixabayMarket Liquidations and Whale Activity

The speed and severity of the price drop were exacerbated by large-scale liquidations of leveraged positions.

Once Bitcoin fell through key support around the $90,000 level, a cascade of long positions got forcefully closed: In the past 24 hours of the worst sell-off, over 300,000 traders’ positions were liquidated, totaling roughly $700+ million in longs wiped out​, this kind of leverage flush-out accelerates declines as automatic sell orders drive prices down further, triggering even more stop-losses.

Observers noted this was the largest wave of liquidations seen since November, illustrating how over-leveraged bets had built up during the prior rally​, the unwinding of those positions has contributed significantly to the rapid price downturn.

At the same time, whale activity has been notable both as a cause and a reaction to the dip, some large holders likely took profits near the recent highs, adding selling pressure. However, data also shows that many whales saw the low prices as an opportunity: roughly 26,430 BTC (over $2.3 billion worth) flowed into whale wallets during the drop, indicating big buyers accumulating coins off exchanges​. (we all know this is not the end)

Blockchain analytics linked these flows to over-the-counter deals, suggesting long-term holders stepping in to buy the dip. In fact, whale accumulation addresses have been growing their balances steadily since late last year, with a sharp uptick as prices plunged below $87k​.

This means that while whale sell-offs may have contributed to the initial decline, other large players are now providing a backstop by scooping up cheap coins. Such whale accumulation could help form a price floor, though it might take time to restore broader market momentum.

Image taken from PixabayExchange and Institutional Movements

Erosion of investor confidence in the past two weeks was also driven by events at major exchanges and shifts in institutional participation: the most dramatic was a security breach at Bybit, a large crypto exchange.

Last week, Bybit disclosed it was hacked, with nearly $1.5 billion in Ethereum stolen — one of the largest crypto thefts in history​: news of such a massive hack had an immediate chilling effect on market sentiment.

It reminded investors of the ongoing vulnerabilities of centralized exchanges, leading some to withdraw funds or sell holdings out of caution. Bybit’s incident did prompt the exchange to halt certain services temporarily (as is common after a breach) and it’s prompting industry discussions about security, this hack was a “wake-up call” that may even spur regulators to impose stricter security requirements on exchanges​. In the short term, the hack contributed to the sell-off by undermining trust traders worried about the safety of their assets are quicker to hit the sell button.

Meanwhile, institutional flows have been pointing downward, crypto-focused investment funds and ETFs saw notable outflows recently. JPMorgan data showed that crypto ETFs hemorrhaged over $500 million in a single week amid the market slump​, these outflows suggest that big investors, such as hedge funds and asset managers, have been reducing exposure, possibly to lock in profits from the earlier rally or to de-risk due to macro conditions.

Some institutional players were engaging in arbitrage trades (for example, going long bitcoin ETFs and short futures to capture price differences), and as the market turned, they unwound those positions: this unwind meant selling pressure on spot Bitcoin, one reason cited by former BitMEX CEO Arthur Hayes, who warned that hedge funds exiting such trades could push prices toward the mid-$70Ks in the near term​.

Additionally, crypto-linked equities like MicroStrategy (which holds a large Bitcoin treasury) fell over 10%, reflecting diminishing institutional confidence​.

All told, recent exchange troubles and institutional pullback have fed into a narrative of caution, amplifying the market’s decline.

Breaking Down the Last Week’s Chaos

After months of optimism, trader sentiment has swiftly swung toward fear: the sudden price drop and negative news flow created a feedback loop of bearish psychology.

A key indicator, the Crypto Fear & Greed Index, plunged into “extreme fear” territory: dropping to about 29 (out of 100) from the high-30s within a day​, this quantifies the gloom that has settled in: market participants are clearly worried about further losses.

The breach of the $90K Bitcoin support level was psychologically significant; once that line broke, many investors lost confidence, fearing a deeper slide.

Several specific events have shaped market psychology recently.

First, the failure of hype to meet reality — e.g. excitement over a pro-crypto U.S. administration or potential Bitcoin ETFs — led to disappointment, traders who “bought the rumor” are now confronting a lack of tangible positive developments, which fuels cynicism. Second, a series of meme-coin frenzy and scandals tarnished the crypto atmosphere​. Reports of sketchy meme coin projects pumping and dumping have made investors more skeptical of speculative altcoins, indirectly weighing on blue-chip coins as well by association. Third, each negative headline (whether it’s inflation, a hack, or regulatory setback) has been magnified by social media and trading forums, quickly turning sentiment sour.

In this environment, fear of loss is overriding the earlier greed for gains: many traders are sitting on the sidelines or moving into cash and any “fear of missing out” has flipped into fear of not getting out in time. This collective psychology of caution and negativity is both a cause and an effect of the downturn, making recovery a challenge until confidence is restored.

Altcoin vs. Bitcoin/Ethereum Performance

Not all parts of the crypto market are suffering equally — altcoins have been hit the hardest in this downturn while Bitcoin and Ethereum have fallen substantially, the percentage declines in many alternative cryptocurrencies are even larger.

For example, over the past month (01–02/2025)Bitcoin is down roughly 20%+ from its peak, but coins like Solana and even Ethereum itself saw drawdowns on the order of 30–40%​. In fact, as of this week Solana was about 41% down month-to-date, and Ethereum about 28% down, versus Bitcoin’s ~20% decline​.

Smaller-cap tokens and recent high-flyers have fared worse still, with double-digit percentage drops in just days not uncommon, this disparity indicates that investors are shedding riskier altcoin positions faster than their allocations to BTC or ETH.

Image taken from PixabaySeveral factors explain why altcoins are underperforming the majors.

Flight to quality is one: in times of stress, crypto holders tend to consolidate into the most established assets (Bitcoin and to some extent Ethereum) or exit to fiat entirely, that leaves altcoins with less buying support and more intense selling pressure. Additionally, many altcoins had enjoyed outsized rallies (some fueled by hype in sectors like DeFi, NFTs, or meme coins) so they had more froth to give back once sentiment turned.

The recent meme coin scandals and volatility particularly hurt the reputation of the altcoin space​, leading to an exodus from those smaller tokens. Regulatory uncertainty disproportionately affects altcoins as well — for instance, some U.S. regulators view certain altcoins as unregistered securities, which makes institutional investors especially wary of them.

In contrast, Bitcoin is increasingly seen as a “safe” digital asset even by some conservative investors. The result is a classic pattern in crypto downturns: Bitcoin dominance (its share of total market cap) rising as altcoins bleed out, even Ethereum, which is the second-largest crypto, has not been spared — its drop was steeper than Bitcoin’s, though not as extreme as riskier small-cap coins. In summary, the higher-beta nature of altcoins means they are feeling amplified pain in this market drop, as traders de-risk their portfolios.

Short-Term Implications and Outlook

The convergence of macroeconomic pressures, regulatory jitters, and market-specific shocks suggests a cautious short-term outlook for crypto.

In the coming weeks, much will depend on how these factors evolve.

For now, caution reigns: traders are likely to remain defensive, keeping position sizes small or hedged until they see concrete improvements in the backdrop. In summary, the recent drop was driven by a perfect storm of factors, and while it has shaken confidence, it hasn’t fundamentally altered the long-term trajectory of crypto. In the near term, patience and vigilance are warranted.

And, why not? Buy the dip!

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Crypto Market Downturn: Breaking Down the Last Week’s Chaos was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.