Crypto Market Sees Sharp Decline as Ether Falls 20%—What’s Behind the Sell-Off?

The downturn in the cryptocurrency market has been severe, with Bitcoin and Ether taking the biggest hits.

Over the past 24 hours, Bitcoin fell to $92,580, its lowest level in three weeks, and Ether totally collapsed, giving up nearly 24% of its value and tumbling down to $2,326—the lowest level for Ether since way back in early September.

Liquidations impacted 418,277 traders across the broader market, with a total of over $2.04 billion in liquidations. Total losses amounted to $1.06 billion. Among the losses, one large-scale investor, or “whale,” was liquidated for $19.05 million.

A sharp decline is in effect due to a confluence of several factors, including not just macroeconomic concerns but also some recent dynamics within the markets themselves.

One of the main forces behind the most recent crypto sell-off is the uncertainty that is swirling around global trade policies. Recent reports have suggested that President Trump’s proposed tariffs—25% on Mexico and Canada, and 10% on China—have sent our trade relations with these countries right to the top of worry lists. Poor trade relations, as these tariffs will likely cause, can hurt economic growth, which can also push inflation down. And what’s bad in trade tends to be bad in trade for the inflation, trade disruptors, and reduced liquidity that push investors away from risk assets like crypto.

In the past, Bitcoin has been seen as a hedge against economic instability, with some investors viewing it as a safe haven asset in times of financial turmoil. But in the short term, risk aversion and liquidity concerns have led to a sell-off, with traders offloading their holdings and anticipating that the economic turmoil will continue and possibly worsen.

Pressure is also being felt by traditional markets as uncertainty hangs over them. Equities, commodities, and foreign exchange markets have been affected by the trade policy matters, and their influence has spread to crypto, intensifying the large sell-off that has been occurring.

Further contributing to the negative sentiment, Bitcoin’s network activity has experienced a clear slowdown. The Bitcoin mempool is almost empty, and transaction fees have dropped to their lowest levels since March 2024. This points to a demand drop, as not a lot of transactions seem to have “fewer users actively participating in the network.”

A slowdown in network activity often correlates with a reduced confidence among investors. When fewer transactions take place, it translates to lower trading volumes and weaker institutional interest and an overall decline in enthusiasm within the crypto space. If this trend keeps keeping on, it could very much lead to a lengthily downward pressure on Bitcoin’s price.

The other primary influence on the crypto market is the ever-increasing U.S. dollar. The U.S. Dollar Index (DXY) has risen to 108.50, and Treasury yields have now gone beyond 4.54%, rendering investment in traditional (and safer) assets far more appealing than anything in the crypto realm.

The appeal of Bitcoin as an alternative store of value tends to diminish when the dollar is strong. Since many consider Bitcoin to be a hedge against the falling value of fiat currencies, a price surge in the dollar tends to make Bitcoin less desirable for investors who are seeking to protect their wealth. And that’s what we’ve seen this year: Rising prices in the dollar, which in turn have shifted more of our capital into bonds, equities, and other dollar-denominated assets, while at the same time reducing our demand for cryptocurrencies.

The swift drop in cryptocurrency values has also started a chain reaction of liquidations, which has served to make the market collapse even worse. Information from Lookonchain indicates that positions worth a total of $1.79 billion were liquidated, with the eye-popping total of $1.49 billion coming from long positions in just 12 hours.

The biggest liquidation happened on Binance. An Ethereum trader lost $11.84 million there. This highlights how exceptionally volatile and risky leveraged trading is.

When traders bet on rising prices, they do so using borrowed funds. Liquidation happens when those traders’ bets go wrong and they start to lose money. To stop them from losing even more money, their trading accounts are automatically closed—liquidated, if you will. This is done under the assumption that if the account-holder was just saved from making an even worse mistake, then the market might stop going down and start going up. “Might,” of course, is doing a lot of work in that last sentence. But the idea is that if the market is going down because traders are being forced to liquidate, then those traders are just doing us all a favor by not being in the market anymore.

Amid the recent low prices for Bitcoin and Ether, traders and analysts are trying to figure out whether the market has hit bottom or if further price drops are coming.

Several specialists see Bitcoin as having a potential long-term value that might appeal to buyers willing to hold the cryptocurrency for many years. These specialists cite Bitcoin’s past performance as a hedge against inflation and fears of worldwide economic instability. Of course, the good old “supply and demand” theory still governs what buyers and sellers do in Bitcoin’s market. If lots of people want to buy it, and not so many want to sell it, then its price tends to go up.

Conversely, if the market persists with its evident weakness, if network activity continues its slow and low rate of growth, and if the strong dollar doesn’t moderate soon, we could be looking at quite a protracted downturn—one that could even make this year’s earlier downturn look like a bad memory. If that happens, and if some large investors decide to take a bath and liquidate their already underwater holdings, we could see some further price drops that could really test the durability of key support levels.

At the moment, market players are on edge, watching closely for signs of recovery or more capitulation. As uncertainty persists, traders have to gird for much higher volatility in the market days and weeks to come.

Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.

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