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3. February 2025  • clock 3 min •  Daniel Mitrovsky

Cryptocurrency Market in Correction – What Happened?

The cryptocurrency market underwent a highly volatile period over the past weekend due to a massive market correction that affected nearly all crypto assets. Bitcoin, the most well-known and largest cryptocurrency in the market, dropped from $101,500 (as of February 2, 2025, 02:30 CET) to a local low of $91,200 (€89,200), which was reached early Monday morning (03:00 CET). In a short period, Bitcoin lost over $10,000 of its value. Currently (12:00 CET), its price has stabilized at around $95,000 (€93,000).

Altcoins, however, suffered much more. The second most well-known cryptocurrency, Ethereum, suffered a loss of more than 20% in the past 24 hours, dropping to a local low of $2,300 (€2,100). The last time Ether was at a similar price level was in June of last year, after which it experienced a rise to over $4,000. Significant losses were also seen by other cryptocurrencies during Sunday and the past night – Ripple (XRP) temporarily fell below $2, with an 18% loss in the past 24 hours, and Cardano (ADA) dropped to $0.56 during the night with a 20% loss in the last 24 hours. The market capitalization of altcoins dropped by more than 30% over the weekend, erasing all growth since last November.

What Caused This Drop?

The weekend drop in the crypto market was caused by several factors, with one of the main catalysts being the growing uncertainty in global financial markets. These concerns were mainly triggered by reports about a potential trade war between the U.S. and several of its key economic partners, such as Mexico, Canada, and China. The U.S. administration announced new tariffs on imports of certain commodities and products, which immediately led to negative reactions on traditional financial markets. Investors were concerned about deteriorating international trade relations and the potential for tariffs to harm economic growth and company profits, as well as causing inflation to rise. This led to increased capital outflows from riskier assets, including cryptocurrencies.

The reactions to the tariff impositions didn’t take long to surface. Canada and Mexico, two key U.S. trading partners, immediately promised retaliatory measures, and China stated it would challenge Trump’s tariffs at the World Trade Organization. These retaliatory measures further fueled investor concerns about the possibility of a trade war. In this case, cryptocurrencies truly became the only way to express risk and uncertainty over the weekend outside of traditional trading hours, as cryptocurrencies trade continuously.

Another factor that significantly affects Bitcoin and the crypto market is the strengthening U.S. dollar. The U.S. Dollar Index (DXY) reached 109.78, while the yield on 10-year U.S. Treasury bonds increased to 4.55%, approaching its 5-year high. Historically, Bitcoin moves in the opposite direction of Treasury bond yields and the dollar index, which means a stronger dollar often weakens Bitcoin.

Source: CNBC

Market nervousness further deepened due to uncertainty surrounding monetary policy and potential actions by central banks. Higher interest rates and stricter financing conditions are pushing investors to shift capital into more stable assets, which reduces demand for cryptocurrencies. Last week, the U.S. saw a suspension of interest rate cuts, and when combined with negative news from the geopolitical scene, it created the conditions for sell-offs.

Huge Liquidations on Derivatives Markets

The crypto market experienced over $2.2 billion in liquidations on derivatives markets in the past 24 hours following the announcement by U.S. President Donald Trump regarding upcoming tariffs on imported goods. According to data from the analytical platform Coinglass, over 740,000 traders were liquidated in the last 24 hours (updated on February 3 at 11:00), with long positions worth $1.89 billion and short positions worth $380 million being liquidated in total.

Source: Coinglass

Liquidations on derivatives markets, such as perpetual futures, occur when traders’ positions are closed due to significant losses or insufficient margin to meet position maintenance requirements.

The liquidations were triggered by a market sell-off in the cryptocurrency market, mainly influenced by news of a potential trade war. This reignited concerns about inflation, as additional tariffs could push prices higher, negatively affecting risk assets. Investors are worried that inflation driven by tariff policies might force the Fed to maintain high interest rates longer than originally expected.

Fear and Greed Index in the Fear Zone

The cryptocurrency Fear & Greed Index, reflecting market sentiment, fell into the fear zone from Sunday night to Monday, dropping to 44 points out of 100 for the first time since October 2024. This range indicates that investors are nervous and concerned about the current market situation.

What Does a 44 Point Value Mean for Investors?

  • Fear Zone – Although the index is not in extreme fear (above 25 points), it still suggests that investors are cautious at the moment, and there is uncertainty in the market.

  • Possible Correction or Stagnation – The market has undergone a significant correction, and investors are concerned about further sell-offs or lack of sufficient trustworthy signals for growth.

  • Buying Opportunity – Low index values often indicate that the market is undervalued, which may be a good time to buy assets and expand one’s portfolio.

Bitcoin Dominance at a New 4-Year High

Bitcoin’s dominance reached a new 4-year high of 64.09% on Sunday night to Monday. This means Bitcoin is strengthening its share of the total market capitalization of the cryptocurrency market, while altcoins are lagging behind. This increase suggests that, in times of uncertainty, investors prefer Bitcoin as a safer option compared to more volatile altcoins. Currently, Bitcoin’s dominance stands at 62%.

Source: Tradingview

Bitcoin dominance last exceeded 64% in January 2021, just before the launch of the largest altcoin bull market in history. At that time, Bitcoin’s dominance dropped from its peak (70%) to 40% in September 2021, which led to massive gains for many altcoins, ranging from hundreds to thousands of percent.

How to Protect Yourself From Market Volatility?

To protect your investments from high volatility in the cryptocurrency market, it’s important to have the right risk management strategy. One effective risk management tool could be using the Take Profit and Stop Loss functions, available in our product Fumbi Custom. These functions can help protect your capital and take advantage of price movements in your favor.

Volatility and price corrections are an inherent part of the crypto market because the cryptocurrency market is still young and very sensitive to various factors—from technological innovations to global economic events. Corrections can actually present buying opportunities, as they often provide a chance to enter quality assets at better prices. However, it is crucial to keep control over your investment strategy and use tools that will help you avoid unwanted downturns.

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Daniel Mitrovsky

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