How can Trump watch the market crash with his eyes wide open? Bitcoin has vanished 1 trillion dollars in 41 days.

Bitcoin has fallen below the starting point of Trump's second term, Ethereum has erased months of gains, and the entire crypto assets market has evaporated over $1.1 trillion in market capitalization in just 41 days. Industry experts say that the current wave of dumping is not simply a market adjustment, but a structural collapse triggered by macroeconomic shocks, amplified by leverage effects, and exacerbated by collective selling from long-term investors.

Trump's tariff impact triggers a chain reaction of market collapse

(Source: Trading View)

The first catalyst for this crash came from Washington, rather than from cryptocurrency policy. Trump announced an expansion of tariffs on China in early October, triggering a rapid shift in global risk appetite. This move immediately caused turmoil in the stock, commodity, and foreign exchange markets, while the reaction in the cryptocurrency market was particularly intense. Leverage ensured this.

Bitcoin and Ethereum entered a bullish phase in October, driven by high open interest and strong long positions. However, macro shocks from Trump seemed to touch a pressure point in that structure. The initial selling forced over-leveraged traders to liquidate, which in turn drove prices down, triggering further liquidations.

As a result, the crash on October 10th produced the first daily candlestick in Bitcoin's history to break through $20,000, accompanied by liquidations reaching as high as $20 billion. This figure is extremely rare in the history of Crypto Assets, indicating that the market's leverage has reached dangerous levels. Even after the initial panic subsided, structural damage remained, liquidity thinned, volatility increased, and the market became unusually sensitive to the rising selling pressure.

Chris Burniske, a partner at Placeholder VC, stated: “I am confident that the last crash on October 10 temporarily paralyzed the Crypto Assets market - after experiencing such a severe collapse, it is difficult to quickly form a sustained upward momentum. This cycle has been disappointing for most people, which may leave them stagnant while hoping for a better outlook or a new historical high.”

Therefore, what was originally a macro policy decision has evolved into a mechanically driven vicious cycle. Tariff announcement → Risk appetite declines → Leveraged bulls are forced to liquidate → Price drop triggers more liquidations → Liquidity exhaustion amplifies volatility → Panic selling accelerates. Once this chain reaction is initiated, even the most favorable encryption policies cannot stop it.

43 Days of Government Shutdown Intensifies Market Crash

If tariffs were the fuse, then the subsequent government shutdown in the United States accelerated this collapse. This shutdown lasted a record-breaking 43 days, leading to a tightening of liquidity in traditional markets, weakening risk appetite, and reducing trading depth on futures and derivatives trading desks.

The crypto assets market is particularly fragile. Insufficient liquidity has exacerbated price volatility, forcing derivatives traders to close positions amid widening spreads and reduced market maker activity. In addition, the U.S. government shutdown has disrupted macroeconomic expectations. Investors who originally anticipated stable policies are now facing uncertainty, the financing market is tightening, and the crypto assets market is also in turmoil due to forced dumping.

The dual impact of tariffs and the government shutdown has created a feedback loop, where decreased liquidity exacerbates volatility, and volatility further reduces liquidity. Although the market generally expects the government to resume operations to alleviate pressure, when the government finally ended the shutdown on November 13, the market hardly reacted, as structural damage had already been done by that time.

The impact of the government shutdown on the crypto market is multi-layered. First, it delays regulatory decisions, including ETF approvals, and this uncertainty forces institutional investors to adopt a wait-and-see attitude. Secondly, government employees working without pay or being forced to take leave reduces overall consumption capacity and risk appetite. Thirdly, the interruption of data releases from federal agencies during the shutdown complicates macroeconomic analysis, increasing market uncertainty.

How Government Shutdown Magnifies the Crash Effect

Liquidity Tightening: The tightening of liquidity in traditional financial markets has transmitted to the crypto market, resulting in reduced market maker activity and an expansion of price spreads.

Uncertainty Premium: Policy uncertainty forces institutional investors to reduce positions or suspend new investments, accelerating outflows from ETFs.

Psychological Impact: A government shutdown lasting 43 days has set a historical record, causing market confidence to collapse and triggering panic selling.

Leverage, Whales, and Triple Blow from ETF Capital Outflow

(Source: SoSoValue)

Another important factor that exacerbated the severity of this crash is the mechanism behind it. The leveraged nature of cryptocurrencies allows millions of traders to trade with leverage of 20x, 50x, or even 100x, making the market exceptionally fragile. Analysts from Kobeissi Letter pointed out that even a 2% intraday fluctuation is enough to wipe out traders using 100x leverage. Therefore, when millions of accounts are in such a high position, the domino effect becomes inevitable.

Analysts also pointed out that from October 6 until the writing of this article, the market experienced three single-day liquidation periods exceeding 1 billion USD, as well as multiple trading days with liquidations exceeding 500 million USD. Therefore, each liquidation day triggers further forced dumping, lowering prices and causing mechanical sell-offs without the need for further deterioration in market sentiment. This mechanical pressure has been exacerbated by the outflow of institutional funds, which quietly began in mid to late October.

This month, the outflow of funds from Bitcoin ETFs exceeded $2 billion, setting the record for the second largest monthly outflow since its launch in 2024. This occurred right at the moment when leverage was unwound, removing a key support layer for buyers. Bitcoin ETFs were seen as the main channel for institutional funds to enter the market, and the outflow of funds indicates that institutional investors are pulling out, which is a devastating blow to market confidence.

(Source: CryptoQuant)

But perhaps the most decisive force comes from Bitcoin whales and long-term holders. According to CryptoQuant, long-term holders have sold about 815,000 Bitcoins in the past 30 days, marking the largest wave of Bitcoin distribution since January 2024. These long-term holders are often seen as “staunch believers,” and their selling has stifled any upward potential.

Moreover, due to the fact that ETFs are currently experiencing capital outflows rather than inflows, the market is caught in the crossfire of two powerful forces: institutional funds withdrawing and early Bitcoin adopters dumping in response to weak prices. Together, they have built a continuous and overwhelming selling wall. When institutions and whales choose to exit at the same time, retail investors are simply unable to support the price, and a crash becomes inevitable.

Policy friendliness cannot stop structural vulnerability

Considering that Bitcoin will have stronger political, regulatory, and institutional dynamics in 2025 than at any other time in history, the lessons of this cycle are inevitable. Government attitudes are friendly, regulatory agencies are consistent, and ETFs have made Bitcoin commonplace for mainstream investors, while companies are incorporating Bitcoin into their balance sheets at an unprecedented pace. However, the market still crashes.

This year's decline indicates that Crypto Assets have ultimately evolved into an asset class sensitive to the macro economy. Today, the financial industry no longer operates in isolation, nor is it independent of traditional financial cycles. Policy support is certainly important, but the impacts of macro shocks, liquidity tightening, leverage dynamics, and whale behavior are more significant.

This dumping also marks a turning point in the way risk is priced. Crypto Assets are entering a new phase, in which structural factors such as liquidity conditions, institutional capital flows, derivative positions, and whale distribution have a greater influence than the optimism brought by political propaganda or the psychological comfort provided by the popularity of ETFs.

Essentially, the most supportive government for Crypto Assets in American history did not protect the market from its deepest structural vulnerabilities, but rather exposed these vulnerabilities. The Trump administration fired SEC Chairman Gensler, promoted Bitcoin strategic reserves, and signed an executive order allowing pension funds to invest in encryption. These policies would have been seen as the ultimate boon for the Crypto Assets industry a year ago. However, when tariff shocks and government shutdowns hit, these policies completely failed to prevent the fall.

This contradiction reveals a brutal truth: Crypto Assets have evolved from “anti-establishment assets” to “macro-sensitive assets.” It can no longer stand alone when the traditional financial system collapses; instead, it may fall even harder due to worse liquidity and higher leverage. Bitcoin was once promoted as “digital gold” and “inflation hedge,” but this crash shows that during a liquidity crisis, its performance resembles that of tech stocks rather than gold.

The Four Structural Problems Exposed by This Crash

Leverage Addiction: The market heavily relies on high-leverage trading to maintain the rise; once liquidation is triggered, it will cause a chain collapse.

Weak Liquidity: Compared to traditional markets, the liquidity in the crypto market is still insufficient, and large sell orders may cause severe price fluctuations.

Whale Dominance: A small number of large holders possess a significant proportion of the Bitcoin supply, and their selling decisions have a huge impact on the market.

Macroeconomic Sensitivity: Crypto Assets can no longer operate independently of traditional financial cycles; macroeconomic shocks will directly transmit to the crypto market.

What can we learn from this crash

The surge in spot ETF assets and massive holdings of Bitcoin by corporate national debt has led industry leaders to view 2025 as the beginning of a structural bull cycle. However, the reality is that Bitcoin has plummeted from its historical high of $126,000 on October 6 to its current level of around $92,000, a decline of 27%. Ethereum has dropped from $4,946 to around $3,200, a decline of 35%. The entire crypto market has evaporated more than $1.1 trillion in market capitalization within 41 days from its peak.

The biggest lesson from this crash is: political support does not equal market stability. The Trump administration provided the most favorable policy environment in the history of encryption, but still could not protect the market from the damage caused by its own structural flaws. Intrinsic mechanisms such as leverage, liquidity, and whale behavior are more decisive for short-term price trends than external policy support.

For investors, this means that it is necessary to reassess the risks. One cannot assume that the market will continue to rise just because the government is friendly, nor can the leverage risk be ignored simply because an ETF is launched. True long-term investors need to be prepared to endure a “survival crisis” level of pullback and remain calm during market panic. As Tom Lee said, “To profit from this hundred-fold super cycle, one must endure the survival crisis and continue to hold the assets.”

This crash also serves as a reminder to regulators that the maturity of the crypto market is still insufficient. Issues such as excessive leverage, weak liquidity, and dominance by whales all need to be addressed through a more complete regulatory framework. However, these structural reforms take time, and in the short term, investors can only learn to coexist with volatility.