Bitcoin, the world’s largest cryptocurrency by market value, has crashed about 20 per cent in the last month on the weakening of the Trump effect across markets and outflows from exchanged-traded funds.
The digital token tumbled after hitting a record high following US President Donald Trump’s January inauguration, as his tariff policies and stubbornly high inflation have shaken investor confidence. The crypto sector was also shaken by a record hack of the Bybit exchange last week.
As a group, Bitcoin ETFs have recorded about $2.1 billion in outflows over the past six days, Bloomberg reported.
Bitcoin was trading at $85,329.21 at 9.11am UAE time on Thursday. It had soared to a record of more than $109,000 ahead of the US presidential inauguration in January.
“The brutal sell-off happening in crypto is not unexpected considering we’ve just seen the biggest hack in our history, if not the history of all financial markets," said Charles Wayn, co-founder of the decentralised Web3 super app Galxe. "This has been compounded by further fears over global tariffs, which have wobbled main stock markets, though by nothing compared to crypto."
The sell-off is crypto-specific and likely exacerbated by a number of short positions that were automatically liquidated as prices plunged, he said.
"Crypto is a battle-tested, weather-hardened market that was able to survive a $60 billion sell-off overnight in 2022. And so Bybit’s $1.3 billion hack combined with a little bit of bluster over global trade tariffs that likely won’t materialise is not going to hold it back for long.”
Bitcoin had a stellar 2024, more than doubling from $44,000 to top $100,000 for the first time on the back of Mr Trump's White House win and the launch of Bitcoin spot ETFs in January last year.
Crypto exchange Bybit, which has more than 60 million users worldwide, said it was hit by history's biggest cryptocurrency hack on Friday, in which 401,000 Ethereum, worth more than $1.5 billion, was stolen.
North Korea was responsible for the theft of approximately $1.5 billion in virtual assets from Bybit, the US's Federal Bureau of Investigation said on Thursday.
Mr Trump on Wednesday said his administration would impose tariffs of 25 per cent on the European Union. Last week, he also floated the possibility of broadening US tariffs to include imports on cars, semiconductors and pharmaceuticals. That followed previous moves to order “reciprocal tariffs” on American trading partners, a levy on steel and aluminium imports, and more tariffs on Chinese goods. The president also said that previously announced levies on Mexico and Canada would come into force on April 2.
Investors pulled more than $1 billion from spot Bitcoin ETFs on Tuesday, the biggest outflow since the cohort debut in January last year, Bloomberg reported. The group of ETFs that hold Ether directly recorded milder outflows of $130 million.
Liquidations of long and short crypto bets accelerated on Wednesday, with about $425 million of positions wiped out over four hours at around 3.30pm in New York, according to data compiled by Coinglass. More than $2 billion of bullish bets were liquidated over the past three days.
Simon Peters, crypto analyst at trading platform eToro, said: "Bitcoin had been showing resilience until it reached the $92,000 level, which had served as support since November. The break below this level likely triggered a series of liquidations, intensifying the downward pressure on the price.
"If we look at previous Bitcoin bull markets, we often see retracements of 25 per cent to 35 per cent before finding a base and starting the next upward trend. Currently, we're down 20 per cent from the all-time high of $109,300. A 35 per cent drop could push Bitcoin to around $70,000, though this is not a certainty."
While large price movements can be "concerning", they are typical in any asset class with Bitcoin still 70 per cent higher than it was a year ago, he said.
Kevin Rusher, founder of real-world assets lending platform RAAC, said that the sell-off shows it’s time for the decentralised finance (DeFi) market to move beyond "volatile crypto assets" and explore more stable alternatives.
"Huge liquidation events like what we’re seeing today really damage DeFi’s reputation and erode trust. Many of the users that get flushed out of this market will never come back again, and that’s a problem if we want to grow DeFi into a major financial ecosystem," he said.
“The reason DeFi was born is because people were looking for a way to gain financial freedom without relying on banks and other centralised financial entities. But when crypto keeps tanking and liquidity keeps drying up, it’s hard to prioritise decentralisation over stability, so DeFi must offer the same level of stability as a bank.”
