It's hard to overstate how remarkable it is that, barely a month into President Trump's second term in office, the crypto market went from the euphoria that drove bitcoin (BTC) above $100,000 to the massive selloff last week.
This came after it was trading above $95,000 on Monday.
This was not how things were supposed to go for crypto advocates. The industry poured $131 million into congressional races and millions more into Trump's campaign with one goal in mind: Creating a more crypto-friendly regulatory environment in the U.S.
And it actually worked. The SEC has already dropped lawsuits against Coinbase and Robinhood. It has even declared that meme coins are not securities.
And yet, bitcoin just suffered its worst week since the FTX collapse in November 2022. So, what exactly is going on?
The more things change, the more they stay the same
One of the arguments that crypto detractors have long made is that unlike companies listed on the stock market, bitcoin has no intrinsic value.
In a recent interview with CBS, JPMorgan CEO Jamie Dimon said, "Bitcoin itself has no intrinsic value." "It's used heavily by sex traffickers, by money launderers, ransomware. So I just don't feel great about Bitcoin."
The price of BTC, therefore, will likely go up and down without any clear factor driving its price swings. The rally that happened after Trump's election was more of an outlier.
There are of course macro factors at work here, mainly the impact that Trump's tariffs could have on the overall U.S. economy. All risk assets have suffered recently, with the tech-heavy Nasdaq suffering its worse three-day drop in two months.
And speaking of FTX, the recent Bybit hack of $1.5 billion in ETH-related assets have renewed concerns about crypto's inherent risks just like back in 2022.
Although Trump's election created a mentality among many crypto traders that the industry was entering a new era, the crash this week doesn't look much different than what's been seen in the crypto market since the beginning.
As a result of last week's sell-off, there's been a massive liquidation in the crypto derivatives market. Over $1.34 billion worth of bullish crypto positions evaporated in just 24 hours, according to data from CoinGlass.
Meanwhile, the bitcoin ETFs that were so central to BTC's surge above $100,000 have also gotten pummeled, losing more than $956 million in February, according to data from Bloomberg Intelligence.
Crypto is still no safe haven
One thing the crypto industry has long promoted is that bitcoin serves as a safe haven from the turmoil of the equity markets in the same way as gold.
"We expect Bitcoin to emerge as the new-age premier' store of value' asset eventually replacing gold over the next decade and becoming a permanent part of institutional multi-asset allocation and a standard for corporate treasury management," Gautam Chhugani, managing director and senior analyst for digital assets at Bernstein, wrote in a note in December.
And maybe that will happen in the next decade. But it still has not happened yet.
"Bitcoin has dropped like a stone in a spectacular descent sparked by risk-off sentiment wracking financial markets," Hargreaves Lansdown analyst Susannah Streeter told Barron's on Friday.
"Crypto euphoria is so highly entwined with broad investor enthusiasm, that when it's dented there is nowhere to hide, with coins and tokens falling in tandem."
The expectation is for bitcoin to go on another rally at some point in the near future. But just like other rallies in the past, there might not be any obvious factor driving it.
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