The cryptocurrency market has shed more than $1 trillion in value over the past six weeks as worries about inflated tech valuations and the Federal Reserve’s interest rate policy triggered a brutal selloff in speculative assets. What began as a correction has evolved into one of the sharpest downturns in recent crypto history, erasing nearly all gains made earlier in the year.
The Numbers Tell a Devastating Story
The total market capitalisation of over 18,000 cryptocurrencies tracked by data provider CoinGecko has plummeted 25% since peaking on October 6, wiping approximately $1.2 trillion from the sector’s combined value.
Bitcoin, the world’s largest cryptocurrency, has fallen roughly 28% during this period to $91,700, trading near its lowest level since April and essentially flat for the year. The decline marks a stunning reversal for an asset that many expected would benefit from the Trump administration’s pro-crypto stance.
Beyond Bitcoin, the damage has been even more severe for alternative cryptocurrencies. Six of the top 20 digital assets by market value have crashed more than 40% this year. Shiba Inu, Sui, and Avalanche have each plunged approximately 60%, devastating investors who piled into these higher-risk tokens.
When “10/10” Became Crypto’s Black Friday
The worst single day of the selloff occurred on October 10, when President Trump threatened to impose “massive” tariffs on China. The announcement triggered the liquidation of $20 billion in leveraged crypto positions across exchanges monitored by Coinbase—the largest single-day liquidation event on record.
Crypto traders now refer to that day simply as “10/10”, a sombre shorthand for the moment when overleveraged positions collapsed en masse. The event exposed how deeply leverage had permeated the market.
“Crypto investors love leverage,” said Ryan Rasmussen, head of research at Bitwise Asset Management. “What we see time and time again is that traders get out over their skis. They think this time is different.”
When prices fall sharply, traders using leverage face margin calls, forcing them to sell positions to cover their loans. This creates a cascade effect where selling begets more selling, accelerating the decline.
The Aftershocks Continue to Reverberate
David Namdar, CEO of CEA Industries, a vaping company that pivoted to buying large quantities of Binance’s BNB token, argues the current market weakness isn’t a fundamental collapse but rather the extended fallout from October’s liquidation event.
“What we are seeing now is not a collapse in crypto markets. It is the extended aftershock of October’s liquidation event,” Namdar said. “The scale is different this time because positions are larger, leverage ran deeper and the unwind takes longer. The fundamentals have not changed.”
His perspective reflects a common view among crypto believers: that the selloff is primarily technical rather than fundamental, driven by forced liquidations rather than a genuine loss of faith in digital assets.
However, market data suggests investor sentiment has genuinely soured. Digital asset investment products, including Bitcoin exchange-traded funds, recorded $2 billion in outflows last week—the largest withdrawals since February, according to CoinShares.
The Fed Factor: Interest Rates Dampen Crypto Appeal
Fresh doubts about whether the Federal Reserve will cut interest rates at its December meeting have compounded the sector’s problems. Higher interest rates make risk-free Treasury bonds more attractive compared to non-yielding assets like Bitcoin and other cryptocurrencies.
The Fed has lowered rates by 0.5% points this year, but recent economic data showing resilience has reduced expectations for further cuts. When investors can earn attractive returns from safe government bonds, speculative assets like crypto lose their comparative appeal.
This interest rate dynamic has also pressured traditional stock markets. The benchmark S&P 500 index has fallen roughly 3.5% from its record closing high on October 28, as concerns about sky-high valuations, particularly among Silicon Valley artificial intelligence companies, have prompted profit-taking.
From Euphoria to Reality Check
The current downturn represents a dramatic reversal for a sector that was celebrating just months ago. President Trump’s pledge to make the United States the world’s “bitcoin superpower” and the appointment of a crypto-friendly chair at the Securities and Exchange Commission had fuelled optimism that regulatory headwinds were finally turning into tailwinds.
Major financial institutions had launched Bitcoin ETFs, traditional asset managers were allocating to digital assets, and institutional adoption appeared to be accelerating. The narrative was that crypto had finally gone mainstream.
“Despite all the institutional adoption and positive regulatory momentum, crypto market gains have now been wiped out on the year,” said Brett Knoblauch, a crypto analyst at Cantor Fitzgerald, capturing the whiplash investors are experiencing.
Leverage: Crypto’s Recurring Villain
This isn’t the first time excessive leverage has amplified a crypto market correction. The pattern repeats with striking regularity: prices rise, traders increase leverage to maximise gains, an external shock triggers liquidations, and the cascade of forced selling drives prices far lower than fundamental factors alone would justify.
Previous crypto bear markets in 2018 and 2022 followed similar scripts. In both cases, the unwinding of leveraged positions extended sell-offs for months beyond the initial catalyst. The difference this time, according to Namdar and others, is the sheer scale of leverage that had built up in the system.
Crypto exchanges offer leverage ratios that would be unthinkable in traditional markets—sometimes allowing traders to control positions 100 times larger than their actual capital. While this can generate spectacular gains in rising markets, it creates systemic fragility that becomes apparent when prices reverse.
What Comes Next for Crypto?
The key question facing the market is whether we’re witnessing a temporary correction or the beginning of a more sustained bear market. Bulls point to improving regulatory clarity, continued institutional interest, and the argument that fundamentals haven’t changed. Bears counter that valuations had become detached from reality and that crypto’s correlation with risky tech stocks makes it vulnerable to broader market weakness.
Several factors will likely determine the market’s direction in coming weeks:
- Federal Reserve policy: If the Fed signals more rate cuts ahead, it could provide relief for risk assets, including crypto. Conversely, a hawkish stance could extend the sell-off.
- Liquidation completion: If most overleveraged positions have now been flushed out, the market could stabilise. However, if significant leverage remains in the system, further declines could trigger additional cascading liquidations.
- Macroeconomic conditions: Trade policy developments, particularly regarding China tariffs, could create volatility. Economic weakness might prompt Fed rate cuts (bullish for crypto) but could also reduce risk appetite overall (bearish for crypto).
- Institutional flows: The $2 billion in ETF outflows last week suggests institutions are reducing exposure. Whether this trend continues or reverses will significantly impact price direction.
For crypto investors, this episode reinforces familiar lessons that each new generation of traders seems destined to learn the hard way. Leverage amplifies both gains and losses. “This time is different” is the most expensive phrase in investing. And markets that rise on euphoria and FOMO (fear of missing out) tend to fall just as dramatically when sentiment shifts.
