Crypto prices have plummeted in recent weeks after a period of solid momentum, with Bitcoin dropping nearly 12 percent in the last week and Ethereum falling 16 percent, sending many investors reeling and shaking previous optimism.
In the last month, Bitcoin is down 18.5 percent. Ethereum, the second most popular coin, has seen a similar turn, dropping about 28 percent. (The theft of $1.5 billion in Ethereum from Bybit, a major crypto exchange, by hackers isn’t helping either.)
But what exactly caused prices to fall?
3 reasons crypto prices are falling
Crypto prices have broadly been on the rise the last few years, fueled most recently by President Donald Trump’s re-election and his administration’s support of digital assets. In fact, the weekend before his inauguration, Trump launched his own memecoin, making some investors millions overnight. The coin’s value has fallen about 53 percent in the past month.
But this downturn isn’t just limited to memecoins. Broader crypto prices have also fallen. Bitcoin, the granddaddy of all cryptocurrencies, is down 22 percent since reaching an all-time high over $109,000 in January — raising questions about where the market is headed and whether investors will be able to recoup the gains they once had.
“Crypto’s dramatic price fluctuations this week are yet another reminder that it’s a highly speculative asset class — not for the faint of heart,” says Patrick Huey, owner and principal advisor at Victory Independent Planning in Portland, Oregon.
Here are three reasons why crypto prices are dropping and what you need to know.
1. Trump’s tariffs have rattled markets
Crypto prices don’t necessarily move exactly like the prices of stocks do, which are often affected by underlying assets, cash flow and business performance. However, crypto prices are swayed by investor sentiment, broader economic trends and policy implementations. In this case, tariffs — which triggered a drop in early February when they were slated to start initially and are expected to begin next week — can impact crypto prices in a couple of ways.
- Tariffs can raise the price of goods, thus contributing to inflation and higher interest rates.
- Tariffs can create global tensions and disrupt supply chains, which contributes to market volatility.
When inflation and economic uncertainty are high, investors tend to steer away from riskier assets in general and gravitate more toward less volatile assets.
2. Inflation just won’t go away
Sticky inflation may also play a role in crypto’s price decline. When inflation persists and prices don’t come down, the Federal Reserve shifts its monetary policy and keeps interest rates higher (or the same) for longer. Non-yielding assets like crypto can become less appealing because investors can earn guaranteed income or returns elsewhere.
Sticky inflation can also deter investment in crypto because your money becomes less valuable. To put it another way, if inflation stays higher, but crypto prices stay the same or fall, you’re losing purchasing power on that investment, which can compel investors to sell or put their money elsewhere.
From a practical standpoint, when inflation is high for a sustained period, investors have less money to spend, and they may be less likely to put what they do have toward a speculative asset, such as crypto.
3. The Trump rally is waning
At the start of his presidency, many crypto investors were optimistic about the support they’d receive from the Trump administration.
In fact, at the crypto inaugural ball, David Sacks, Trump’s crypto and AI czar, said, “The reign of terror against crypto is over, and the beginning of innovation in America for crypto has just begun.”
But the optimism that once pushed Bitcoin to an all-time high may be fading as economic and geopolitical concerns grab headlines and investors wait to see what a crypto executive order and other initiatives bring.
Should you invest in crypto?
Buying the dip might sound tempting. After all, plenty of people have seen big gains with Bitcoin and other crypto. But, keep in mind that the recent decline is just another example of how volatile crypto is.
“If you decide to include crypto in your portfolio, understand that a buy-and-hold strategy might not yield the dramatic returns you hear about in crypto success stories — and the volatility will be high,” says Melissa Caro, founder of My Retirement Network and an equity sales trader at FBN Securities Inc.
Crypto isn’t backed by hard assets, such as cash flow. Its prices are solely dependent on what others are willing to pay for the coin — and that can change quickly. Investing in crypto isn’t for everyone and may not align with your long-term financial goals.
Bottom line
Crypto is about as risky as it gets. The recent decline in prices driven by tariffs, sticky inflation and negative investor sentiment is par for the course when investing in crypto. For as high as prices rise, they can also fall in a matter of days, sometimes even minutes. If you invest in crypto, only invest what you’re willing to lose.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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