How did a pro-Bitcoin government end up overseeing this $1 trillion market implosion?

When Donald Trump entered the White House in January, crypto markets expected alignment between policy and price.

The new administration delivered on some of its promises by providing regulatory clarity, friendlier oversight, and the strongest institutional welcome Bitcoin had ever received.

As a result, spot ETFs surged in assets, corporate treasuries accumulated BTC, and industry leaders framed 2025 as the beginning of a structural bull cycle.

However, as the year progressed, it became one of the most violent market downturns the sector has seen. Bitcoin has fallen back below its starting point for Trump’s second term, Ethereum has erased months of gains, and the broader crypto market has shed more than $1.1 trillion in just 41 days.

Due to this, industry experts have said the current selloff is not simply another correction. It is a structural breakdown triggered by macroeconomic shocks, amplified by leverage, and intensified by the capitulation of long-term holders.

This unraveling of the contradiction defines the story of this market cycle: policy support proved decisive, but the mechanics of leverage, liquidity, and macro shocks proved stronger.

The tariff shock

The selloff’s first catalyst came from Washington, not from crypto policy.

Trump’s tariff expansion on China, announced in early October, triggered a rapid reassessment of global risk appetite. The move created immediate turbulence across equities, commodities, and foreign exchange markets, but crypto’s reaction was especially sharp.

Leverage made sure of that.

Bitcoin and Ethereum had entered October with strong conviction of an uptrend supported by their elevated open interest and aggressive long positioning.

However, Trump’s macro shock hit that structure like a pressure point. The initial selloff forced over-leveraged traders to unwind their positions, which in turn pushed prices lower, triggering further liquidations.

As a result, the Oct. 10 cascade produced the first-ever $20,000 daily Bitcoin candlestick, accompanied by a staggering $20 billion in liquidations.

Even after the initial panic subsided, the structural damage persisted as liquidity thinned, volatility increased, and the market became hypersensitive to incremental selling pressure.

Speaking on that market impact, Chris Burniske, a partner at Placerholder VC, said:

“[I am] convinced the last [Oct. 10] massacre broke crypto for a while – hard to quickly develop a sustained bid, after such a meltdown. This cycle has been disappointing for most, which can paralyze action as people hope for bluer skies, or former ATHs.”

So, what began as a macro policy decision morphed into a mechanically driven downward spiral.

Shutdown chaos magnifies pain

If tariffs were the spark, the US government shutdown that followed became the accelerant of the market collapse.

Lasting a record 43 days, the shutdown tightened liquidity across traditional markets, undermining risk appetite and reducing trading depth across futures and derivatives desks.

Crypto was especially vulnerable. Thin liquidity amplified price swings, forcing derivatives traders to unwind positions amid widening spreads and reduced market-maker activity.

Moreover, the US shutdown also disrupted macro expectations. Investors who anticipated policy stability instead faced uncertainty, and funding markets tightened just as crypto markets were already destabilized by forced selling.

This dual shock of tariffs plus shutdown created a feedback loop where lower liquidity increased volatility, and volatility further reduced liquidity.

These developments occurred despite the consensus expectation that reopening government operations would ease pressure. However, when the shutdown eventually ended on Nov. 13, markets barely reacted, as structural damage had already begun to take root by then.

Leverage, whale Distribution, and institutional outflows

Another significant factor contributing to the severity of the market downturn was the underlying mechanics.

Crypto’s leverage profile, which has millions of traders taking on positions levered 20×, 50×, even 100×, has made the market extraordinarily fragile.

For context, analysts at The Kobeissi Letter noted that even a 2% intraday move is enough to wipe out traders who are 100 times leveraged. So, when millions of accounts are positioned at those levels, a domino effect is inevitable.

The analysts further noted that between Oct. 6 and the time of writing, the market experienced three separate days with over $1 billion in liquidations and multiple sessions exceeding $500 million.

So, every liquidation day triggered further forced selling, pulling prices lower and producing a mechanical sell-off that did not require sentiment to deteriorate further.

This mechanical pressure was intensified by institutional outflows, which began quietly in mid-to-late October. This month, Bitcoin ETFs have experienced more than $2 billion in outflows, marking their second-largest negative month since their launch in 2024.

This has removed a key layer of buy-side support at the exact moment leverage was unwinding.

But perhaps the most decisive force came from BTC whales and long-term holders.

According to CryptoQuant, long-term holders have sold ~815,000 BTC in the past 30 days, marking the most significant wave of distribution since January 2024.

Their selling has choked off any upside, and with ETFs now experiencing outflows rather than inflows, the market is caught between two powerful forces: institutional money stepping back and early Bitcoin adopters selling into weakness.

Together, they have created a wall of persistent and overwhelming sell pressure.

What do we learn from this?

The lesson of the cycle is unavoidable, considering Bitcoin entered 2025 with more political, regulatory, and institutional momentum than at any point in its history.

The administration was friendly. Regulators were aligned. ETFs had normalized Bitcoin for mainstream investors. Corporations were adding BTC to balance sheets at a record pace.

Yet the market still plunged.

This year’s drawdown has shown that crypto has finally matured into a macro-sensitive asset class.

The industry no longer moves in isolation. It no longer operates independently of traditional financial cycles. Policy support matters, but macro shocks, liquidity tightening, leverage dynamics, and whale behavior matter more.

The selloff also marks a turning point in how risk is priced. Crypto is entering a phase where structural forces, including liquidity conditions, institutional flows, derivatives positioning, and whale distribution, outweigh the optimism of political messaging or the psychological comfort of ETF adoption.

Essentially, the most pro-crypto administration in US history did not shield the market from its deepest structural vulnerabilities. Instead, it revealed them.

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