The crypto market has seen a massive sell-off, losing over $500 billion in the last 24 hours, as analysts warn of increased volatility ahead. Macroeconomic uncertainties, rising trade tensions, and investor risk aversion have contributed to the sharp downturn, with Bitcoin (BTC) and Ethereum (ETH) leading the decline.
Crypto Market Faces Sudden Reversal
According to The Kobeissi Letter, the total crypto market cap surged from $2.7 trillion to $3.1 trillion within 10 hours following U.S. President Donald Trump’s announcement of a strategic crypto reserve. However, within a day, all those gains disappeared, with the market plunging to $2.6 trillion, erasing $500 billion in value.
Analysts described the reversal as a “colossal retail trap”, which heavily impacted bullish traders. Crypto funds saw a record $2.6 billion outflow in late February, marking a new high in liquidations, exceeding the previous record by $500 million.
Bitcoin and Ethereum Take Major Hits
- Bitcoin (BTC) dropped 3% below its pre-announcement level, losing $250 billion in market cap over 12 hours.
- Ethereum (ETH) fell 8% to $2,002, reversing earlier gains.
- The downturn extended beyond crypto, with the S&P 500 index falling 5% and major tech stocks, including Nvidia, experiencing significant declines.
Trade War and Risk-Off Sentiment
The market downturn coincided with escalating global trade tensions. On March 3, Trump announced a 25% tariff on Canada and Mexico, triggering retaliation from both countries. China also responded by raising tariffs on key U.S. imports by 10-15%, as an additional 20% tariff on Chinese imports was set to take effect.
“The real driver here is the GLOBAL move towards the risk-off trade. As trade war tensions rise and economic policy uncertainty broadens, ALL risky assets are falling,” – The Kobeissi Letter (via X)
With increasing uncertainty, Bitcoin’s role as a safe-haven asset is being questioned. Gold prices have surged 10% since January 1, while BTC has fallen nearly 10% over the same period, leading many investors to shift their focus to traditional safe-haven assets.
Extreme Volatility Expected Ahead
Analysts are now warning that crypto markets could experience even greater volatility in the coming weeks. Goldman Sachs’ volatility panic index has surged from 1.4 in December to 9.1 last Friday, nearing levels last seen during major financial shocks.
A Bank of America survey further highlights skepticism toward Bitcoin’s resilience in a potential trade war:
- Only 3% of respondents believe BTC would perform well in such a scenario.
- 58% consider Gold the top safe-haven asset for 2025.
Hope for Market Stabilization?
Despite the heightened volatility, Matt Mena, Crypto Research Strategist at 21Shares, believes the reaction may be an overcorrection. According to him, many investors had already anticipated these macroeconomic moves, suggesting that some stabilization could follow when trading resumes.
“Despite the short-term volatility, the long-term outlook for the crypto sector remains bright,” Mena told crypto.news. He added that broader structural trends favoring institutional adoption remain strong.
With increasing uncertainty in global markets, investors and traders will be watching closely to see whether crypto can regain its footing or if even wilder swings lie ahead.
