When Donald Trump entered the White House in January, crypto markets expected alignment between politics and prices.
The new administration has delivered on some of its promises by providing regulatory clarity, friendlier oversight, and the strongest institutional welcome Bitcoin has ever received.
As a result, spot ETF assets surged, corporate treasuries accumulated BTC, and industry leaders touted 2025 as the start of a structural bull cycle.
However, as the year progressed, this downturn became one of the most violent markets the sector has seen. Bitcoin fell back below its starting point for Trump’s second term, Ethereum erased months of gains, and the broader crypto market lost more than $1.1 trillion in just 41 days.
For this reason, industry experts have said that the current selloff is not just another correction. It is a structural collapse triggered by macroeconomic shocks, amplified by leverage and intensified by the capitulation of long-term security holders.
This resolution of the contradiction defines the story of this market cycle: political support proved decisive, but the mechanisms of leverage, liquidity and macroeconomic shocks proved stronger.
The price shock
The first catalyst for the sell-off came from Washington and not crypto politics.
The expansion of tariffs on China announced by Trump in early October triggered a rapid reassessment of risk appetite globally. The move created immediate turmoil in the stock, commodity, and foreign exchange markets, but the crypto reaction was particularly sharp.
Leverage ensured that.
Bitcoin and Ethereum entered October with strong conviction of an uptrend supported by their high open interest and aggressive long positioning.
However, the macroeconomic shock caused by Trump hit this structure as a pressure point. The initial sell-off forced overleveraged traders to unwind their positions, which sent prices lower, triggering further liquidations.
As a result, the October 10 cascade produced the first-ever daily Bitcoin candlestick of $20,000, accompanied by a staggering $20 billion in liquidations.
Even after the initial panic subsided, structural damage persisted as liquidity declined, volatility increased, and the market became hypersensitive to additional selling pressure.
Speaking on this market impact, Chris Burniske, Partner at Placerholder VC, said:
“(I’m) convinced that the last massacre (October 10) broke crypto for a while – hard to quickly develop a sustainable supply after such a collapse. This cycle has been disappointing for most, which can cripple the action as people hope for bluer skies or old ATHs.”
Thus, what started as a macro policy decision turned into a mechanically driven downward spiral.
The chaos of stopping amplifies the pain
If the tariffs were the spark, the subsequent U.S. government shutdown became the accelerator of the market collapse.
Lasting a record 43 days, the shutdown tightened liquidity in traditional markets, undermining risk appetite and reducing trading depth on futures and derivatives desks.
Crypto was particularly vulnerable. Low liquidity has amplified price swings, forcing derivatives traders to unwind their positions amid widening spreads and reduced market maker activity.
Additionally, the closure of US markets also disrupted macroeconomic expectations. Investors who anticipated political stability instead faced uncertainty, and funding markets tightened just as crypto markets were already destabilized by forced sales.
This twin shock of tariffs and shutdowns created a feedback loop in which lower liquidity increased volatility, and volatility further reduced liquidity.
These developments occurred despite the consensus expectation that reopening government operations would ease the pressure. However, when the shutdown finally ended on November 13, markets barely reacted as the structural damage had already begun to take root.
Leverage, Whale Distribution, and Institutional Exits
Another important factor contributing to the severity of the market downturn has been the underlying mechanics.
Crypto’s leverage profile, which allows millions of traders to take positions with 20x, 50x, or even 100x leverage, has made the market extraordinarily fragile.
For context, analysts at The Kobeissi Letter noted that even a 2% intraday move is enough to eliminate traders who are 100x leveraged. So when millions of accounts are positioned at these levels, a domino effect is inevitable.
Analysts further noted that between October 6 and the time of writing, the market saw three separate days with over $1 billion in liquidations and multiple sessions exceeding $500 million.
Thus, each day of liquidation triggered further forced selling, driving down prices and producing a mechanical liquidation that did not require a further deterioration in sentiment.
This mechanical pressure was intensified by institutional capital outflows, which began discreetly between mid-October and the end of October. This month, Bitcoin ETFs saw over $2 billion in outflows, marking their second-largest negative month since their launch in 2024.
This removed a key level of buy-side support at the precise moment leverage was unwinding.
But perhaps the most decisive force came from BTC whales and long-term holders.
According to CryptoQuant, long-term holders have sold approximately 815,000 BTC over the past 30 days, marking the largest distribution wave since January 2024.
Their sell-off has snuffed out any upside potential, and with ETFs now experiencing outflows rather than inflows, the market is caught between two powerful forces: institutional money is retreating and early Bitcoin adopters are selling weak.
Together, they created a wall of persistent and overwhelming selling pressure.
What do we learn from this?
The lesson of the cycle is inevitable, given that Bitcoin entered 2025 with more political, regulatory, and institutional momentum than at any other time in its history.
The administration was friendly. The regulators were aligned. ETFs had normalized Bitcoin for traditional investors. Companies were adding BTC to their balance sheets at a record pace.
Yet the market still plunged.
This year’s pullback showed that crypto has finally become a macro-sensitive asset class.
The industry no longer evolves in isolation. It no longer operates independently of traditional financial cycles. Political support is important, but macroeconomic shocks, liquidity tightening, debt dynamics and whale behavior matter more.
The liquidation also marks a turning point in the way risk is assessed. Crypto is entering a phase where structural forces, including liquidity conditions, institutional flows, derivatives positioning, and whale distribution, outweigh the optimism of policy messaging or the psychological comfort of ETF adoption.
Essentially, the most pro-crypto administration in U.S. history has failed to protect the market from its deepest structural vulnerabilities. Instead, it revealed them.
