Is a storm brewing in crypto? Sharp declines herald further volatility

The tailwinds in favour of cryptocurrencies that began to blow with the return of Donald Trump to the White House seem to have turned into a storm. The sector has lost all the euphoria that drove it at the beginning of the year and is now letting itself be dominated by depression. For the industry, the last month has seemed like a year: the US tariff policy, the pause in rate cuts, the launches of memecoins without any foundation, the $Libra scandal and the Bybit hack have not left the industry in peace and have increased the pressure. Although it has remained in a tense calm for weeks, now the crypto market has exploded . This Tuesday, the red sign has dominated among the main cryptocurrencies, with drops of up to 8% for bitcoin and double digits for the main altcoins. This strong correction is not an isolated case and days and weeks of volatility are expected, at least in the short term.

Bitcoin has fallen below 90,000 this week and has touched 86,800, the lowest since November and 20% from its highest. After having lost its most important support, now the downward movements can become a free fall to the next threshold, at 73,000 dollars. Javier Pastor, director of Training at Bit2Me, points out that this fall has occurred without a deep collapse of the Nasdaq or the S&P, two indices with which it has always shown a certain correlation : “This suggests that we are facing a downward trend,” he says. The lack of trading volume in recent weeks, where the supply for sale has been stronger than the demand —despite the purchase of institutional players such as the companies Strategy and Metaplanet—, and the liquidations in derivative products such as futures and options for more than 1,000 million dollars, amplify the speed of the falls and reflect the sentiment of investors.

“The sentiment is very negative, of falling, of fear,” warns the expert. Doubts about tariffs and geopolitical tensions could also weigh on international indices, putting more pressure on the crypto market and worsening its collapse. Jorge Soriano, CEO of the Criptán platform, points out that bitcoin is a risk-on asset, which tends to suffer significantly when risk aversion increases. Without new impulses in sight that could push bitcoin and with so many unknowns, many investors choose to take profits, after two years in which the pioneer cryptocurrency has risen up to 460% .

But the falls do not only affect bitcoin. If its future becomes gloomy, that of altcoins becomes black. For Pastor, the impact of these corrections is more severe for other cryptocurrencies. “This market is inflated by a lot of speculation in tokens with a very low capitalization, such as memecoins , and in projects with little support,” he emphasizes. In addition, it is less liquid and is not supported like bitcoin by a base of institutional buyers who perceive it as a consolidated and safer asset. Proof of this is the increase in bitcoin's dominance in the market: it now accounts for 60%, levels from the beginning of 2021. Capital is rotating from altcoins to the pioneer cryptocurrency due to its greater stability. “The bearish cycles of altcoins usually generate drops of between 50% and 80% compared to bitcoin. They are more fragile projects, which suffer more in correction environments,” he warns.

Ethereum, the second-largest asset on the market, has only deepened its decline since the beginning of the year. Its desperate attempt to compete with Bitcoin has never been successful, and the increasingly fierce competition with Solana has dampened investor sentiment. The hack of the Bybit exchange , which saw more than $1.4 billion worth of Ethereum disappear last Friday , raised unexpected doubts about the security of this blockchain network, praised as the most robust in the space. Ethereum has fallen to November 2024 lows and is trading at $2,400.

Solana is the one that is bearing the brunt. The memecoin craze has driven the token to new records in recent months. However, it has become a double-edged sword. The launches of $TRUMP, $MELANIA and $Libra, promoted by Javier Milei and eventually revealed to be a scam, have weighed down its price as it is built on its blockchain. Its association with high-risk projects has raised concerns about its reputation , suggesting the need for more rigorous management in the selection and promotion of projects within its ecosystem. The token falls to $136, its lowest level since October last year.

While on the one hand investors are abandoning the market in the face of strong corrections, on the other hand these falls are an opportunity for savers to acquire these assets. Rubén Ayuso Morales, co-manager of the A&G Cryptocurrency FIL fund, recalls that in its bull run in 2017, bitcoin rose from less than $1,000 to almost $20,000 in one year. “What many forget is that it was not easy, and that it experienced multiple corrections of between 25% and 40%,” he points out. For the expert, a similar pattern is being repeated: short-term corrections, but long-term growth remains intact. “The biggest mistake is to sell out of fear and miss the next rebound,” he says.

As if in a domino effect, the sharp corrections in digital assets have sunk the share price of crypto companies. Coinbase fell 8%, while mining companies Riot Platforms and Mara Holdings dropped 12%. Companies that have bet on bitcoin to fatten their reserves also plummeted: Strategy, the firm that owns the most bitcoin, lost 13%. Its Japanese counterpart, Metaplanet, fell 3% at the close of the market on Tuesday, although it only partially captured the losses.

“Cryptocurrency-listed firms are falling more violently due to their leverage and high exposure to bitcoin. Strategy, with a relevant portion of its reserves in this cryptocurrency , sees how its shares reflect this 'leverage effect': each correction of bitcoin hits the price of its share multiplied,” details Javier Molina, from eToro. For experts, these falls expose the limits of this strategy of bitcoin accumulation, since a prolonged bearish streak could undermine the financial strength of these companies.