Crypto markets have experienced their worst downturn of the year, as Bitcoin fell below the $90,000 mark for the first time since November. Most altcoins are also in the red, with some posting double-digit losses. Still, many traders are confused about what specific news caused this crypto market’s bearish turn.
On Tuesday, February 25, Bitcoin experienced one of its sharpest declines in recent months. The largest crypto asset fell 8.25%, losing its $90,000 support and falling to $86,600. No specific news or event accompanied this drop.
Instead, the downturn was a reaction to several major trends unraveling in recent weeks. Major questions regarding the crypto markets, shifts in monetary policy, and rising geopolitical tensions all contributed to the crash.
Scams, Interest Rates, and Geopolitics Influenced Bitcoin Price
Recently, crypto markets have been experiencing a crisis of trust emanating from several high-profile scams and hacks. One was the Libra scandal, which almost took down a world leader.
After receiving an endorsement from the President of Argentina, Javier Milei, the Solana-based Libra token reached a valuation of $4.5 billion, only to drop by 95% within hours. This prompted many to label it a ‘rug pull,‘ a type of scam in which developers abandon a project and take investors’ funds.
The next week, on February 21, the crypto market experienced its worst hack in history. Bybit lost $1.4 billion to North Korean hackers, who will likely use these funds to launch further attacks against the industry. Still, while these events hurt trust, they mainly affected altcoins, especially Solana.
For Bitcoin, the immediate driver of the crash was the flight of institutional capital. According to CoinShares, Bitcoin ETFs have seen $508 million in outflows in the past week. This indicates declining investor confidence in the asset.
The shift in institutional capital was likely due to two reasons. Firstly, investors are worried about the potential negative effects of Donald Trump’s tariffs on Mexico, Canada, and other countries. In particular, tariffs could drive inflation up, meaning the Federal Reserve would have to maintain high interest rates.
This is bad news for Bitcoin, which thrives in a low-interest rate environment. Additionally, traders view Bitcoin as a gold alternative and a growth asset. Both these categories benefit when interest rates are low.
This is not the case this year, as the Fed is slowing its pace of easing, keeping interest rates between 4.25% and 4.5%. Furthermore, the latest Federal Reserve meeting suggests that rate cuts are also unlikely in March.
These figures imply that Bitcoin (BTC) will continue to face selling pressure ahead of the US tariffs, scheduled for next month. Whether Bitcoin continues to decline or reverses course will depend on the effects these tariffs will have on the US economy.
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