Why Is The Crypto Market Going Down? How To Turn Setback Into Golden Opportunity

Over the past five months, the crypto market saw impressive growth, with total market capitalisation surging from $2.11 trillion back in October to a peak of $3.72 trillion. This bull run was triggered by various positive developments that gave a huge boost of confidence to the crypto community. However, in the last three weeks, the market has entered a consolidation phase, with major coins trading 10 per cent to 15 per cent below their peaks. As investors assess this pullback, key questions emerge: What factors are causing the current volatility, what does this mean for the future of crypto and most importantly, what should investors do right now?

Catalyst Behind Recent Volatility

The volatility witnessed over the past month can be traced back to several critical events. 

Deepseek’s Debut Causing Tech Sell-off: One notable trigger was the launch of Deepseek.ai, an advanced AI model developed at a modest cost of just $6 million. The company says R1’s performance matches OpenAI’s initial “reasoning” model and it does so using a fraction of the resources.

This created a fear that Deepseek could challenge the US dominance in AI triggering a sell-off in the US tech stocks. The sell-off led to a spillover into other markets including crypto. Bitcoin saw a nominal correction but sustained above key levels and was able to recover quickly. 

Change in Fed’s Rate Outlook: Another key factor was the Federal Reserve’s shift in tone. Fed Chair Jerome Powell’s hawkish remarks and revised forecast—indicating only one rate cut for the year—significantly reduced expectations for increased liquidity.

Higher interest rates mean there is less capital available for riskier investments like crypto, which has led to short-term market corrections. Furthermore, higher-than-expected inflation data released a few days later further reduced the hopes for additional rate cuts, triggering a temporary correction.

Market’s Reaction to US Tariffs: Global trade policies have also played a critical role. On February 1st, President Trump imposed a 25 per cent tariff on imports from Canada and Mexico, along with a 10 per cent tariff on Chinese goods. These measures, designed to assert US dominance and control, sent shockwaves through global financial markets and triggered a record $2 billion in liquidations in the crypto sector in just one day, bringing Bitcoin down to $91,200.

Concerns over escalating geopolitical tensions and the possibility of a broader trade, disturbing foreign relations fueled a sell-off during this period. Although a subsequent 30-day pause in tariffs provided temporary relief fueling recovery, further tariffs on industrial goods like iron and aluminium have kept investor uncertainty high.

What Should Investors Do Now?

While recent tariff measures and regulatory shifts have caused short-term volatility, the long-term outlook for crypto remains promising. History shows that consolidation phases are essential for building sustainable momentum for a bull run.

On the other hand, a prolonged tariff war would increase inflationary pressures that might impact the strength of the dollar, making crypto an attractive option to protect investor money from inflation.

Ultimately, this brings in more liquidity creating a favourable environment for the growth of the sector. In the current environment, investors should create disciplined strategies and take advantage of the pullbacks by dollar-cost averaging to seize attractive entry points during market corrections.

Golden Opportunity

Consolidation is a natural phase of any bull market, and savvy investors view these periods as golden opportunities rather than setbacks. While taking advantage of such volatility, it becomes crucial to conduct thorough research on each token to safeguard capital and identify true value.

By diligently analysing fundamentals and capitalising on market corrections, investors can construct robust, diversified portfolios that yield sustained growth over time. These consolidation phases serve as strategic reset points helping investors generate better risk-adjusted returns.

In essence, using these dips to recalibrate your portfolio can position you to benefit significantly when the market rebounds.

(The author is the CEO and Co-founder of Mudrex, a global crypto investment platform)

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.