In a dramatic turn of events, the cryptocurrency market has suffered a significant crash, sending shockwaves through the financial landscape.
Bitcoin (BTC) dropped 1.34% to $97,656, while Ethereum (ETH) plunged 13.74% to $2,655.46, and Cardano (ADA) tumbled 14.82% to $0.7385.
The sudden crash has left investors scrambling for answers. Is this just a dip or something bigger? Let’s break down the details in this article!
Post Summary
5 Reasons Why The Crypto Market Crashed
1. DeepSeek’s AI Disruption and Its Ripple Effect on Crypto
One of the most unexpected contributors to the market downturn is the rise of DeepSeek, an advanced artificial intelligence (AI) model developed in China.
As AI continues to reshape industries, DeepSeek’s breakthrough in providing affordable AI solutions has disrupted the tech sector.
This innovation led to a sell-off in technology stocks, particularly in companies that rely on high-margin AI services, such as Nvidia and AMD.
Given Bitcoin’s historical correlation with the tech sector, often trading in tandem with the Nasdaq Composite, a decline in AI-driven stocks quickly extended to digital assets.
Analysts have observed a correlation coefficient of approximately 0.5 between Bitcoin and tech stocks, meaning that when the latter falls, Bitcoin tends to follow suit.
Suggested Read: DeepSeek’s AI: How It Shook the Crypto Market and What’s Next
2. Implementation of New U.S. Tariffs
In another unexpected twist, the U.S. government recently imposed additional tariffs on Germany, Canada, and China.
These include a 25% tariff on imports from Canada and Mexico and a 10% tariff on select Chinese goods.
These tariffs have fueled fears of a global trade war, increasing inflationary pressures and dampening economic growth.
In times of economic uncertainty, investors typically flock to safer assets like gold and treasury bonds, while riskier assets like cryptocurrencies suffer from reduced demand.
This latest round of tariffs has directly contributed to the current sell-off, further straining the digital asset market.
3. Market Manipulations and $10 Billion Liquidations
Perhaps one of the most controversial factors in this market crash is the role of crypto exchanges in mass liquidations.
Reports indicate that certain exchanges engaged in market manipulation tactics that triggered forced liquidations worth approximately $10 billion.
When leveraged positions are liquidated, they create a cascading effect, amplifying market declines.
This phenomenon, often referred to as a “long squeeze,” causes sharp price declines as stop-loss orders are triggered en masse.
The lack of regulatory oversight in the crypto industry makes such manipulations more common, further exacerbating volatility.
4. Federal Open Market Committee (FOMC) Decisions
In its January 2025 meeting, the FOMC decided to maintain the federal funds rate at the 4.25%–4.50% range, opting for a pause in the rate-cutting cycle that began in late 2024.
This decision was influenced by concerns over persistent inflation and economic uncertainties.
However, after the FOMC’s announcement, Bitcoin fell below $100K, trading around $91,441.
Historically, low-interest-rate environments have encouraged investment in riskier assets, including cryptocurrencies, due to the availability of cheaper capital.
Conversely, expectations of rising interest rates can lead institutional investors to reduce exposure to volatile assets like crypto.
However, in this instance, the FOMC did not signal imminent rate hikes; instead, it maintained current rates, leading to investor disappointment.
5. U.S. Stock Market Crash
The broader U.S. stock market has also been hit hard, primarily due to the impact of DeepSeek’s disruption and the recent tariff implementation by the U.S. government.
The emergence of DeepSeek has caused a sell-off in tech stocks, significantly affecting market giants such as Nvidia, Tesla, and Microsoft.
Additionally, the newly imposed tariffs on Germany, Canada, and China have created uncertainty in the global trade landscape, leading to declining investor confidence and an overall market downturn.
The stock market crash caused a ripple effect on the crypto market because they are linked to the same economic trends.
As people rushed to sell stocks, they did the same with digital assets, making crypto losses even worse.
What’s next for crypto, and when do we expect the market to bounce back?
Future Outlook: Will the Market Rebound Soon?
1. Tariffs May Weaken Dollar and Favor Bitcoin
Although the immediate market reaction to the recent tariff announcements has been negative, many analysts view these measures as part of a broader, long-term strategy that could ultimately benefit the cryptocurrency market.
President Trump’s decision to impose tariffs on key trading partners is expected to weaken the U.S. dollar over time, making Bitcoin an increasingly attractive hedge against fiat currency depreciation.
Trump paused tariffs on Canada and Mexico for 30 days to address drug flows and immigration.
Interestingly, the market reacted positively to this news with a pullback.
2. The U.S. Wealth Fund Initiative
In a significant policy shift, President Donald Trump has signed an executive order to establish a U.S. sovereign wealth fund aimed at securing long-term economic stability.
Overseen by Scott Bessent and Howard Lutnick, both Bitcoin advocates.
Their involvement has led to speculation that the fund may allocate a portion of its assets to digital currencies, potentially legitimizing and stabilizing the crypto market.
If implemented, this could legitimize crypto as an institutional asset, drive capital inflows, and accelerate mainstream adoption.
3. Trump’s Plans for Crypto
If you recall, during the U.S. presidential campaign,Donald Trump pledged to make the United States the “world capital” of cryptocurrency.
Reinforcing this commitment, his administration has taken concrete steps including signing Executive Order 14178, which establishes a regulatory framework for digital assets while rejecting central bank digital currencies (CBDCs).
Additionally, the creation of a crypto advisory council and the proposed federal Bitcoin stockpile signal a long-term institutional embrace of Bitcoin and blockchain innovation.
These initiatives provide a bullish outlook for Bitcoin’s growth, as they encourage regulatory clarity, mainstream adoption, and greater institutional participation in the crypto economy.
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Conclusion
The cryptocurrency market crash has wiped out huge portions of investors’ portfolios.
From DeepSeek’s AI disruption to U.S. economic policies and market manipulations, multiple forces converged to trigger the current downturn.
However, history has shown that crypto markets are resilient, often bouncing back stronger after major corrections.
Additionally, new U.S. policies supporting crypto could be a game-changer, paving the way for a more sustainable future for the industry.
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