When Donald Trump entered the White House in January, the crypto market expected policy and price alignment.
The new administration made good on some of that promise by providing regulatory clarity, friendlier oversight, and the strongest institutional welcome Bitcoin has ever received.
As a result, spot ETF assets have soared, corporate treasuries have accumulated BTC, and industry leaders have positioned 2025 as the start of a structural bull cycle.
However, as the year progressed, it became one of the most severe market downturns the sector has ever experienced. Bitcoin has fallen below the starting point of President Trump’s second term, Ethereum has erased months of gains, and the broader crypto market has lost more than $1.1 trillion in just 41 days.
As a result, industry experts say the current decline is more than just a correction. It is a structural collapse caused by macroeconomic shocks, amplified by leverage, and exacerbated by the capitulation of long-term holders.
The unraveling of this contradiction defines the story of this market cycle. Policy support turned out to be decisive, but leverage, liquidity, and macroshock mechanisms turned out to be more powerful.
tariff shock
The initial trigger for the decline came from Washington, not crypto policy.
President Trump’s expanded tariffs on China, announced in early October, triggered a rapid reassessment of global risk appetite. The move caused immediate turmoil in stocks, commodities, and foreign exchange markets, but the reaction in cryptocurrencies was particularly sharp.
Leverage ensured that.
Bitcoin and Ethereum entered October with strong confidence in their uptrend, supported by rising open interest and aggressive long positions.
However, President Trump’s macro shock hit that structure like a pressure point. The initial decline forced overleveraged traders to unwind their positions, resulting in lower prices and further liquidations.
As a result, the October 10th cascade resulted in the first-ever daily $20,000 Bitcoin candlestick, resulting in a staggering $20 billion in liquidations.
Even after the initial panic subsided, the structural damage continued as liquidity thinned, volatility increased, and markets became more sensitive to gradual selling pressures.
Chris Burniske, partner at Placerholder VC, said of the impact on the market:
“(I am) convinced that the last (October 10th) massacre caused cryptocurrencies to temporarily collapse. After such a meltdown, it is difficult to develop a sustained bid quickly. This cycle has been a disappointment for most and could paralyze action as people expect more blue skies and ex-ATH.”
In other words, what started as a macro policy decision has turned into a mechanically induced downward spiral.
Shutdown chaos adds to the pain
If the tariffs were the trigger, the ensuing U.S. government shutdown accelerated the market collapse.
The shutdown, which lasted a record 43 days, tightened liquidity across traditional markets, hurting risk appetite and reducing trading depth across futures and derivatives desks.
Cryptocurrencies were particularly vulnerable. Thin liquidity amplified price volatility, forcing derivatives traders to unwind positions amid widening spreads and reduced market maker activity.
Furthermore, the US government shutdown also disrupted macro expectations. Investors who had hoped for policy stability instead faced uncertainty, and the funding market tightened, just as the crypto market was already destabilized by forced sales.
The dual shocks of tariffs and closures created a feedback loop in which lower liquidity led to higher volatility, and volatility led to further lower liquidity.
These developments occurred despite consensus expectations that the resumption of government operations would ease pressure. However, when the closure finally ended on November 13, the market reacted little as structural damage had already begun to take root by then.
Leverage, whale distributions, and institutional outflows
Another important factor that contributed to the severity of the market downturn was the underlying mechanism.
The leverage profile of cryptocurrencies, where millions of traders take positions with leverage of 20x, 50x, and even 100x, makes the market extremely vulnerable.
For context, analysts at Kobeissi Letter pointed out that even a 2% intraday move is enough to wipe out a 100x leveraged trader. Therefore, when millions of accounts are placed at these levels, a domino effect is inevitable.
Analysts further noted that between October 6th and the time of writing, the market saw more than $1 billion in liquidations over three days, and more than $500 million in multiple sessions.
Therefore, each liquidation day triggered further forced selling, driving prices down and creating a mechanical sell-off that did not require further deterioration of sentiment.
This mechanical pressure was reinforced by the institutional outflow that began quietly in mid-to-late October. Bitcoin ETFs experienced more than $2 billion in outflows this month, making it the second-largest negative month since its inception in 2024.
This removed an important layer of buy-side support at the very moment leverage began to loosen.
But perhaps the most decisive force came from BTC whales and long-term holders.
According to CryptoQuant, long-term holders sold approximately 815,000 BTC in the past 30 days, making it the largest wave of circulation since January 2024.
With their selling holding back the upside and ETFs now experiencing outflows rather than inflows, the market is caught between two powerful forces: institutional investors pulling back and early Bitcoin adopters selling on the weak side.
Together, these created a wall of sustained and overwhelming selling pressure.
What can we learn from this?
The lessons of this cycle are inevitable, given that Bitcoin enters 2025 with more political, regulatory, and institutional momentum than at any point in its history.
The administration was friendly. The regulators are aligned. ETFs were normalizing Bitcoin for mainstream investors. Companies were adding BTC to their balance sheets at a record pace.
Yet the market still fell.
This year’s drawdown showed that cryptocurrencies have finally matured into a macro-sensitive asset class.
The industry no longer operates in isolation. It no longer functions independently of traditional financial cycles. Policy support is important, but macro shocks, liquidity tightness, leverage dynamics, and whale behavior are more important.
This decline also marks a turning point in risk pricing. Cryptocurrencies are entering a phase where structural forces such as liquidity conditions, institutional flows, derivative positioning, and whale distribution outweigh the optimism of political messages and the psychological comfort of ETF adoption.
Essentially, even the most crypto-friendly administration in U.S. history could not protect the market from its most serious structural weaknesses. Instead, it revealed them.
(Tag translation) Bitcoin
