Why is crypto crashing? Explaining the current market meltdown

• Huge liquidations and the Bybit hack triggered a $150 billion market sell-off
• Falling capital inflows and rising threat aversion proceed to empty liquidity from crypto markets

The cryptocurrency market is dealing with a extreme sell-off, with main property shedding billions in worth. At press time, Bitcoin [BTC] was buying and selling at $88,993, down 7.21% within the final 24 hours. Ethereum, XRP, and Solana had been additionally struggling double-digit losses. Ethereum was down 10% to hit $2,426, XRP dropped by 10.99% to hit $2.21, whereas Solana misplaced 12.62% of its worth to commerce at $139.37.

This sharp downturn has been fueled by a number of components, together with large liquidations, dwindling capital inflows, and rising threat aversion amongst buyers. So, what precisely is inflicting this collapse?

Huge liquidations and the Bybit hack – An ideal storm for crypto

The crypto market noticed $340 million liquidated in only one hour, with over $150 billion erased within the final 24 hours. This excessive volatility has triggered widespread panic promoting, resulting in steep losses throughout the board. 

Compounding the disaster, the Bybit hack on 21 February 2025 dealt an enormous blow to investor confidence. The alternate suffered $1.4 billion in losses, making it the biggest monetary heist in historical past. 

Arkham Intelligence compared it to the $1 billion theft from the Central Financial institution of Iraq in 2003, highlighting the unprecedented scale of the assault. With buyers withdrawing funds from exchanges to keep away from publicity, liquidity is drying up and fueling the sell-off.

Supply: X

Fading capital inflows and rising threat aversion – Why crypto is struggling

One other alarming issue is the dramatic decline in capital inflows. In response to Ali Martinez, inflows into the crypto market have plummeted by practically 50% within the final 10 days, shrinking from $52 billion to $26.5 billion. 

This decline means fewer new funds are coming into the market, making it tougher for property to rebound from steep losses. With out sturdy inflows, liquidation cascades speed up, resulting in deeper market crashes.

On the similar time, buyers are shifting away from dangerous property like Bitcoin as volatility spikes in conventional markets. 

For instance – The Volatility Index (VIX) surged by 21.74% in simply 5 days, signaling uncertainty in world monetary markets. Traditionally, when threat urge for food diminishes, buyers dump speculative property, worsening the crypto market’s downturn.

Supply: X

Concern and Greed index confirms panic

Investor sentiment is quickly deteriorating too, as mirrored by the Crypto Concern and Greed Index. On the time of writing, it had a studying of 29 (Concern). Simply yesterday, it was nonetheless impartial at 40 and a month in the past, the market was in greed mode at 61. 

Such a fast shift means merchants are exiting positions out of worry, additional accelerating market declines. Whereas excessive worry can typically sign a possible shopping for alternative, the absence of capital inflows and ongoing panic promoting could make a fast restoration unlikely.

Supply: CoinMarketCap

So, why is crypto crashing? The market’s decline isn’t on account of a single trigger, however a mix of devastating components. 

The Bybit hack has shattered confidence, liquidations have intensified promoting strain, capital inflows have collapsed, and world markets have gotten extra risky. This has pressured buyers to exit dangerous positions. 

The crypto market relies on liquidity to maintain worth ranges and proper now, liquidity is vanishing. Until inflows get well and market sentiment improves, the sell-offs might proceed.