A year ago, the price of Bitcoin hit a landmark of $100,000, sparking wild celebrations in the cryptocurrency world. With a pro-crypto president set to take office, industry boosters predicted that Bitcoin would surge as high as $250,000 by the end of 2025.
Those rosy projections have not panned out.
Over the last two months, Bitcoin has plunged to a low of $82,000 in late November from $126,000, a nearly 35 percent drop that erased virtually all its gains this year. (Bitcoin rebounded this week, reaching $93,000 on Wednesday.) The prices of other leading cryptocurrencies have also plummeted, with Ether down nearly 40 percent since August.
The causes of the downturn show that crypto, once considered a distinct branch of the financial world, has close ties with the wider economy. The market turbulence has been fueled partly by broad economic trends, like the threat of tariffs and speculation about interest rates. But it was also exacerbated by high-risk practices in the crypto world, where many traders borrow money to increase their bets, leading to steep losses when the market falls.
Even the most established cryptocurrencies remain volatile investments, despite the growing popularity of digital assets in politics and traditional finance.
“The recent sell-off is a good reminder of the risks that come with this space,” said Adam Phillips, managing director of investments at EP Wealth Advisors, a wealth management firm. “Crypto remains a volatile investment and certainly isn’t for the faint of heart.”
The downturn arrived just as the crypto industry was reaching a new level of mainstream acceptance. President Trump ended a regulatory crackdown on crypto and signed legislation that gave a seal of government approval to one of the industry’s most profitable products. He also made crypto a staple of his family’s business empire, starting a crypto firm called World Liberty Financial with his three sons.
The increasing adoption of digital currencies has widened the downturn’s impact. This year, dozens of publicly traded companies began buying crypto, betting that the enthusiasm around digital currencies would help increase their share prices.
Now, as stock prices crater, many of those companies are struggling, announcing share buybacks and management reshuffles.
By far the largest of these “digital asset treasury” companies is Strategy, a software firm that has amassed more than $58 billion of Bitcoin. Its stock has fallen more than 30 percent over the last month, raising concerns that the company could be forced to sell some of its Bitcoin, which would cause crypto prices to drop even further. (Strategy did not respond to a request for comment.)
“People will be sort of nervously watching for any sign of that,” said Hilary Allen, a law professor and crypto expert at American University.
None of this seemed likely last December, when Bitcoin reached the $100,000 milestone. Since then, the industry has gotten much of what it wanted in Washington, the result of a fund-raising blitz that filled Congress with crypto sympathizers.
The Securities and Exchange Commission dropped lawsuits against many major crypto companies, lifting a legal cloud that had halted the industry’s progress for years. And Mr. Trump announced that the United States would establish its own Bitcoin reserve, a government-run stockpile of digital coins.
On Oct. 6, Bitcoin reached a high of $126,000. Then came the crash.
On Oct. 10, Mr. Trump announced that he would impose a new tariff on China, sending shock waves through the global economy. Bitcoin dropped about 10 percent, while other coins plunged even more.
The impact on traders was immediate. On many crypto trading platforms, investors can borrow money to make bigger bets, posting collateral and receiving multiples of that amount in return. When the market does well, this type of leveraged trading helps maximize profits.
But in a downturn, it can intensify losses, forcing the platforms to seize the collateral that traders have posted — a process known as liquidation. The day of Mr. Trump’s tariff announcement, more than 1.6 million crypto traders faced liquidations, at a cost of at least $19 billion, according to CoinGlass, a crypto data tracker.
These sorts of crashes are common in the crypto world. When prices cratered in 2022, a succession of crypto companies were forced into bankruptcy, exposing fraudulent practices that led to criminal charges and lengthy prison sentences.
So far, the current market turbulence has not caused anywhere near that level of damage. Bitcoin’s price remains several times as high as it was in late 2022, when the collapse of the FTX exchange forced it below $20,000. That means many longtime crypto buyers may still be sitting on large profits.
And the falling prices have not entirely dampened the crypto world’s enthusiasm.
On Monday, Michael Saylor, the executive chairman of Strategy, announced that his company had bought another $12 million of Bitcoin.
David Yaffe-Bellany writes about the crypto industry from New York. He can be reached at [email protected].
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