Bitcoin's Plunge: Multiple Factors Trigger Crypto Bloodbath What Lies Ahead?

Bitcoin's Plunge: Multiple Factors Trigger Crypto Bloodbath What Lies Ahead?The cryptocurrency market experienced a dramatic shakeout last week, with Bitcoin plummeting below $90,000, hitting a new low since mid-January and triggering a panic sell-off. On February 25th, Bitcoin briefly dipped below $8,900, experiencing a 7

Bitcoin's Plunge: Multiple Factors Trigger Crypto Bloodbath What Lies Ahead?

The cryptocurrency market experienced a dramatic shakeout last week, with Bitcoin plummeting below $90,000, hitting a new low since mid-January and triggering a panic sell-off. On February 25th, Bitcoin briefly dipped below $8,900, experiencing a 7.7% drop in 24 hours. Other cryptocurrencies, including Ethereum, Solana, and Dogecoin, suffered losses exceeding 10%. This sharp decline wasn't a singular event but a confluence of factors, including President Trump's aggressive tariff policies, geopolitical tensions, waning market momentum, and recent major security incidents.

Market Concerns Sparked by Trump's Tariff Policies

The Trump administration's tariffs on imports from Mexico and Canada were a significant catalyst for the recent Bitcoin downturn. Although Trump subsequently announced a 30-day postponement of the tariffs, concerns about a "trade war" lingered, prompting investors to sell off risk assets like Bitcoin to seek safer havens. This amplified global market volatility, further impacting Bitcoin's price. The uncertainty surrounding the tariff policies and their potential long-term effects created immense pressure on investors. Fears about the future economic trajectory directly led to a decrease in risk appetite, causing investors to dump high-risk assets, with Bitcoin, as a representative risk asset, bearing the brunt of the impact. This event highlights the influence of macroeconomic policies on the cryptocurrency market, suggesting that it's not entirely independent of traditional financial markets.

Panic Selling Fueled by Cryptocurrency Security Incidents

Beyond macroeconomic factors, recent cryptocurrency security incidents exacerbated market panic. On February 22nd, the prominent cryptocurrency exchange Bybit suffered a hack, losing over $1.5 billion in digital assets, raising concerns about platform security. This was followed by reports of Infini losing nearly $50 million in virtual assets, further fueling the panic. These security incidents not only resulted in significant financial losses but also severely damaged investor confidence in the cryptocurrency market, prompting many to sell their holdings to mitigate risk. The events exposed security vulnerabilities within the cryptocurrency market and served as a reminder for investors to carefully select trading platforms and enhance their security awareness. This series of events undeniably increased market uncertainty, further driving down Bitcoin's price.

Massive Liquidations Highlight Market Risk

Data from Coinglass revealed that nearly 370,000 traders globally were liquidated within 24 hours on February 25th, with total liquidation amounts reaching $1.36 billion, including a single liquidation of $10 million. This indicates a high level of leveraged trading in the market, leading to massive losses when the market experiences sharp fluctuations. These liquidated traders were mostly speculators who used high leverage to amplify returns, simultaneously exposing themselves to significant risk. The crash directly impacted numerous speculators, resulting in substantial losses. The liquidation wave further confirmed the high-risk nature of the cryptocurrency market, cautioning investors against blindly following trends and emphasizing the importance of rational risk assessment and leverage control.

Weakening Market Momentum and Technical Analysis

In addition to the above factors, weakening market momentum also contributed to Bitcoin's price decline. Top Wall Street technical strategist Katie Stockton previously warned that Bitcoin's upward momentum had weakened, potentially leading to a sell-off lasting several weeks. Bitcoin's price had been hovering between $90,000 and $100,000 since early February, failing to break through this range, indicating a lack of sustained upward momentum. After the initial strong surge, profit-taking pressure emerged, also contributing to the price drop. Technical analysis reveals increased volatility and clear range-bound trading in Bitcoin recently, reflecting weakening market momentum. Many analysts believe the current downturn might be a technical correction rather than a long-term trend reversal. In the medium to long term, Bitcoin still holds upward potential.

Regulatory Divergence Exacerbates Market Uncertainty

Differing regulatory stances on cryptocurrencies across countries have also increased market uncertainty. South Dakota delayed a bill that could have allowed the state to invest in Bitcoin, while the European Central Bank strongly opposes including Bitcoin in reserves. Conversely, some countries and regions maintain a relatively open attitude towards cryptocurrencies; for example, the Czech National Bank is evaluating the feasibility of allocating 5% of its reserves to Bitcoin. This regulatory disparity directly impacts the cryptocurrency market's growth potential and innovation, further complicating risk management.

Controversy Surrounding Bitcoin as a Strategic Reserve Asset

The concept of Bitcoin as a strategic reserve asset is theoretically appealing, with its scarcity and decentralized nature making it a potential hedge against inflation and financial system instability. However, practical risks and obstacles remain, including high price volatility, inconsistent global regulatory attitudes, and a lack of international coordination and consensus. While some countries, such as El Salvador, have adopted Bitcoin as legal tender, the external pressures and risks they face are noteworthy. In the future, the US under a new Trump administration might accelerate the advancement of Bitcoin reserve-related legislation, and countries that have experienced high inflation or financial crises may also consider Bitcoin as a reserve asset.

Impact of Institutional Investors and Macroeconomic Factors

Despite the market challenges, some institutions and analysts remain optimistic about Bitcoin's long-term trajectory. Geoff Kendrick, global head of digital asset research at Standard Chartered Bank, predicts Bitcoin will reach $200,000 by the end of 2025. Continued inflows into ETFs, strategic allocations by institutional investors, and macroeconomic catalysts such as anticipated Fed rate cuts could potentially drive Bitcoin's price recovery. Fed Chair Powell has compared Bitcoin to gold, acknowledging its excessive volatility and deeming it not a competitor to the US dollar.

Summary and Outlook

The current Bitcoin crash is the result of multiple interacting factors, including macroeconomic policies, security incidents, weakening market momentum, and regulatory divergence. In the short term, the market continues to face pressure, and prices may remain volatile. However, in the medium to long term, Bitcoin's price is expected to re-enter an upward channel. Continued attention from institutional investors, inflows into ETFs, and potential macroeconomic catalysts could drive price recovery. Nevertheless, investors should remain cautious, closely monitor market developments, and rationally assess risks. The future trajectory of the cryptocurrency market will depend on the combined effects of multiple factors and remains uncertain.