Why Crypto Is Crashing: 6 Forces Driving the 2025 Selloff

Crypto is having an extremely rough time. Ever since hitting an all-time high (ATH) of $126,000  on October 6, Bitcoin (BTC -1.54%) has been in a free fall. On November 21st, the BTC price dropped to its lowest point in over seven months, falling below $81,000, representing a drawdown of 35.7%.

Since then, the price has recovered somewhat, currently trading around $87,000, down 31% from its peak and 6.55% year-to-date (YTD).

With that, Bitcoin is currently having its second-worst November in history with 20.5% negative performance, according to data from CoinGlass. It was during the bear market of 2018 that Bitcoin had its worst November with a 36.57% downside.

This comes following the third-worst October in Bitcoin’s history, with 3.69% losses and the only red one since 2018, when the crypto king posted a negative performance of 3.83%.

Bitcoin’s ongoing deep correction has been seen as the end of the bull market, as it aligns with the cryptocurrency’s typical late-cycle shakeouts that tend to range between 25% to 35%.

“It seems pretty likely at this point that we’ve seen a regime shift in the crypto markets,” said trader CryptoParadyme in a post on X. “All signs at the moment point to risk off for bitcoin, and the echoes of 2021 have reappeared: bitcoin topping decisively ahead of the equity market, which has not been feeling great over the last few months.”

Even if Bitcoin price enjoys a nice upside move to $100K, indicating an ease in forced selling, this cycle is believed by many to be over. On the downside, traders are looking at the $75,000-$80,000 support band, with price expected to go much lower when it goes deep into the bear market.

With Bitcoin down, altcoins are also struggling, though most of them have been experiencing a severe drawdown throughout this year. The total crypto market cap is currently sitting around the $3 trillion mark, down from almost $4.4 trillion peak hit on October 7.

When it comes to Ethereum (ETH -0.82%), the second-largest cryptocurrency is currently down 42% from its ATH of almost $4,950 that was hit late in August and barely surpassed the 2021 high of $4,840. Currently, trading at $2,880, the ETH price is down 24.64% in November and 14.24% YTD.

As for Solana (SOL -1.37%), it is down 54% from its January ATH of $293 and 28.26% this year.

Much like crypto assets, the share price of crypto-focused public companies is also experiencing an absolutely dreadful time, down in double digits in the last week alone.

The rout comes at a time when 2025 was thought to be a boon for the cryptocurrency market, thanks to crypto-friendly President Donald Trump. Instead, this entire year has been a rollercoaster for the sector as prices experienced massive volatility throughout. 

So, what happened? Why is crypto behaving so horribly? Let’s check out the main factors responsible for crypto’s recent drawdown and just how likely each one is, along with our probability scores.

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1. Stablecoin Malfunction on Oct 10 (USDe/Binance Glitch): 9/10

Corrections in the crypto sector began on October 10, when traders experienced the largest liquidation event in history. Not only did that event trigger mass liquidations, but it also set off a multi-week deleveraging cycle, with liquidity still stressed and market makers still cautious.

What happened on 10th October wasn’t the sole driver of markets descending into chaos and bear territory, but it was definitely the starting dominoes.

It was after Trump threatened China with yet another round of tariffs that spooked the markets. But amid the violent crash that occurred within hours, an alarming event exacerbated the crypto plunge.

The event was the depegging of USDe on the leading centralized crypto exchange, Binance. USDe is a synthetic dollar created by Ethena Labs, which oversees key operations like minting, redeeming, collateral, staking, and risk management of the stablecoin. It is backed by assets including USDT, BTC, ETH, and stETH.

With a market cap of $7.3 billion, USDe is the fourth-largest stablecoin. The biggest one is Tether’s USDT with a market capitalization of $184.5 billion.

USDe tracks the US dollar, with its backing protected from price fluctuation through delta-hedging that involves taking offsetting positions in derivatives markets. On Oct. 10-11, the price of USDe dropped to $0.65 on Binance.

While the synthetic dollar also went down on other venues before quickly recovering, the depegging on Binance was of a bigger magnitude and took more time to regain the peg.

“It’s like a fire broke out on Binance, but all of the roads were blocked, and firefighters couldn’t make their way in. This caused a wildfire to break out on Binance, but pretty much everywhere else, that fire was immediately put out by bridging liquidity.”

– Dragonfly’s Haseeb Qureshi

This didn’t happen on Binance because it didn’t have any primary dealer relationship with Ethena. Also, their internal oracle treated the faulty price as valid and started liquidating positions they shouldn’t have.

To rectify the situation, Binance later announced that it would refund users who were wrongly liquidated.

The Binance-specific breakdown was due to the failure of the CEX’s trading infrastructure and liquidity under extreme market pressure. As the market started melting down, exchanges’ systems began buckling under overload, with APIs failing and deposits and withdrawals temporarily halted. This created a shortage of liquidity.

Uphold’s head of research, Dr. Martin Hiesboeck, called the market crash a “targeted attack that exploited a flaw in Binance’s Unified Account margin system” on X.

Recently, Tom Lee of BitMine told CNBC that during the market crash of Oct. 10, large trading firms, which help maintain price stability across exchanges, faced significant capital losses. He characterized the Binance glitch as a code error comparable to structural failures, where a single problem triggers cascading effects.

2. Simple Deleveraging (Liquidations & OI Flush): 8.5/10

On October 10, the market had a massive selloff, resulting in tens of thousands of traders losing their crypto positions. In fact, crypto had its record $20 billion wipeout, the largest in dollar terms.

The actual numbers are expected to be much higher as platforms like Binance only provide partial or delayed liquidation reporting. 

Binance may have exacerbated this situation, but what initially spooked the market and overwhelmed the CEX’s infrastructure was President Trump’s announcement of 100% tariffs on China. The announcement came after Wall Street’s closing bell and catalyzed a simple deleveraging event in the crypto market, which operates 24/7.

Deleveraging often triggers a cycle of forced selling, which creates significant downward pressure on prices. This is particularly pronounced in crypto due to its high volatility, substantial use of leverage, and relatively low liquidity compared to traditional financial markets.

As a result, more than $30 billion worth of Bitcoin positions have been wiped out in less than two months.

The open interest in the Bitcoin market was above $90 billion on October 8, which shows  the total number of outstanding, active derivative contracts. In 2021, the peak was $26.4 billion, showcasing just how much leverage there was in the market this time. Three days later, it had fallen to $70.5 billion, and now it is sitting under $60 billion. 

The biggest shock during this liquidation was that traders were forced out of even their profitable positions, which was because of auto-deleveraging. 

This risk management mechanism in crypto perpetuals cuts winning positions when liquidations overwhelm market depth and an exchange’s remaining buffers, such as insurance funds or vaults committed to absorbing distressed flow.

The scale of liquidations this time has not only been a sign of extreme leverage in the market but also the involvement of large players, such as market makers and institutions, whose large positions may have amplified the cascade effect.

And in crypto, where liquidity is thin, the effect of large positions becomes much bigger. As prices start declining, it forces long positions to be closed, which means selling the asset at the market price, sending prices even lower, which then triggers more liquidations, creating a self-reinforcing cycle.

The good thing is that excessive leverage has been cleared from the market. Such periods often act as a necessary reset, where forced sellers exhaust themselves, leading to stability and recovery.

3. Global Economic Uncertainty (Risk-off Rotation): 7.5/10

Another strong contributing factor to crypto’s breakdown is the macroeconomic conditions.

The recent US government shutdown, for instance, lasted for more than 40 days. During this period of prolonged uncertainty, the market was almost frozen, and when the shutdown ended, the market saw a breakout, albeit briefly.

While not the initial catalyst, macro conditions certainly amplify the downturn. The impact of broad risk-off sentiment and tightening liquidity conditions is actually being felt not only across the crypto market but throughout traditional financial markets as well.

There has been a notable retreat in global stock markets, particularly impacting technology stocks like Nvidia (NVDA -3.46%), as investors take profits and reassess high valuations. The sell-off comes despite a strong earnings season, which suggests caution among investors and a potential shift to risk-off.

As a result, the S&P 500 fell from a high of 6,920.34 at the end of last month to 6,534 last week. Currently, it is sitting around 6,722. 

Investors are wrestling with “conflicting artificial intelligence (AI) sentiments, mixed economic signals and geopolitical uncertainty,” stated JPMorgan in its latest note. “The flight from risk hit tech and AI-linked stocks hardest, spreading across sectors and dragging bitcoin below $87,000 for the first time since April, as it nears its longest weekly losing streak since July 2024.”

This ongoing risk-off rotation refers to a change in the behavior of an investor who is moving their capital from riskier assets like stocks and crypto to safer, lower-risk ones like government bonds, gold, and cash due to economic concerns or geopolitical tension.

Investor sentiment is the primary driver of this change, which can be triggered by events like poor economic data, central bank policy changes, or a sharp sell-off. 

Policy changes like rate cuts, however, tend to be positive for risky assets as they make borrowing cheaper and lower-yielding safe assets like cash less attractive. Currently, the federal funds rates are in the range of 3.75% and 4.00%, after the Federal Reserve lowered them by 25 bps at its October 2025 meeting.

Traders are now pricing in an 80.7% chance of yet another 25-basis-point cut in December.

4. OG Selling (Profit-taking by Older Wallets): 6.5/10

The simplest explanation for rising prices is more buyers, and for falling prices, more sellers.

While forced selling has been one of the biggest reasons for crypto’s crash, profit-taking by older wallets is also a contributing factor to the weakness in prices. After all, it was this cycle that Bitcoin finally hit that coveted $100,000 mark. For a decade, Bitcoin believers have been calling for BTC’s ascent to $100K, so when it finally reached that level, they realized their gains.

For instance, earlier this month, a Satoshi-era whale sold all of its BTC, valued at $1.5 billion, after holding them for 15 years.

But while there has been profit-taking by long-term holders, on-chain data shows that it wasn’t massive enough to be the primary driver for such a deep price correction. Additionally, the level of distributions seen from older wallets has been in line with the long-term-holder behavior that’s been observed near cycle tops.

It’s not all selling either; some of it also involves rotating from spot BTC to ETFs for tax and security advantages.

According to analysts at crypto exchange Bitfinex, the fundamentals of the largest cryptocurrency remain robust and attractive to institutional investors, who will continue to adopt Bitcoin and drive demand.

However, retail investors aren’t the only ones who sold their Bitcoin stack but even institutions played a role in the drawdown.

Last week, the 11 US-listed Spot Bitcoin ETFs broke trading records, with cumulative volumes exceeding $40 billion, which can be a sign of institutional capitulation. Also, they collectively processed a record $3.5 billion worth of redemptions this month, on pace to have their worst month ever.

BlackRock’s (BLK +1%) spot Bitcoin ETF alone is responsible for $2.2 billion in outflows so far, making it the second-worst month on record since the iShares Bitcoin Trust ETF (IBIT) made its debut in early 2024. This shows that newer entrants are just as quick to sell as they bought Bitcoin through these funds.

According to Citi Research, for every $1 billion withdrawn from Bitcoin ETFs, the asset’s price declines by 3.4%.

The outflows, according to Rebecca Sin of Bloomberg Intelligence, are likely due to hedge funds unwinding the basis trade, a strategy that exploits differences in prices between spot and futures markets.

Still, “rosier times” are expected ahead “due to accelerated institutional adoption amid an expansionary monetary environment,” wrote Vetle Lunde, head of research at K33, in a recent report. 

5. DAT Indexing Fears (MSCI Exclusion & Treasury-stock Unwinding): 6/10

An emerging issue for crypto prices is the unwinding of the crypto-treasury narrative. 

This year, we saw publicly-traded companies becoming digital asset treasury (DAT) companies by holding significant amounts of crypto on their balance sheets. 

But while previously their stock prices traded at a premium to the value of their underlying crypto assets, which allowed them to raise capital easily to buy even more crypto, the decline in those asset prices has now eroded the value of their corporate holdings. As a result, the stock prices of these crypto treasury companies have also fallen, though more rapidly and by a greater amount than the value of their digital assets, leading to a compression of their market-to-net-asset-value (mNAV) ratios.

As the premium disappears, with some stocks even trading at a discount to their crypto holdings, these DATs are now facing pressure to sell their crypto holdings or buy back their own stock, adding selling pressure to the crypto market.

The combined market cap of public DAT firms, which was above $175 billion in July, has since fallen under $100 billion. Meanwhile, the combined value of their crypto holdings has fallen from about $140 billion to about $100 billion.

Michael Saylor’s Strategy (MSTR -6.17%), which is the largest Bitcoin holder with 649,870 BTC, has its shares down 40.32% over the past month and 57.24% over the past year, as it trades at $173.79.

JPMorgan recently warned that the Strategy could face billions in outflows if global index provider MSCI and other major indices remove the stock. In response Saylor said that “Strategy is not a fund, not a trust, and not a holding company” but a company with a “$500 million software business and a unique treasury strategy that uses Bitcoin as productive capital.” He added:

“No passive vehicle or holding company could do what we’re doing.”

When it comes to Ethereum, BitMine (BMNR -5.06%) is the largest DAT holder of the coin. It bought 3.63 million ETH at an estimated average of $2,840. BMNR stocks have fallen 41.44% over the past month, although it remains up over 278% YTD.

Forward Industries (FWDI -0.47%), meanwhile, holds over 6.9 SOL at an average cost of $230.

While the fear surrounding these companies’ exclusion from indexes is not the core trigger for falling prices and only has a medium-sized drag on them, it is certainly driving confidence down, and as the narrative gains traction, it can create increasing pressure on prices, ultimately sending them much lower.

6. Quantum Fears (Switching to Zcash(ZEC -6.03%)): 1.5/10

Yet another major fear for the crypto market is the advancement of quantum computing, which could undermine the cryptography securing Bitcoin.

For now, quantum fears don’t have much effect on prices, with no measurable flows, exchange data, or wallet rotation to support this. The chatter around Bitcoin’s quantum reckoning is still very much theoretical. But while currently mostly speculation, this could be a risk vector for Bitcoin’s next cycle.

The fear is currently driven by the breakthroughs reported by tech giants like Google (GOOG +1.2%) and IBM (IBM -0.11%).

Google recently announced that its 105-qubit “Willow” processor completed a physics simulation in just over two hours that would otherwise take a classical supercomputer more than three years. Then there is IBM, whose Starling project aims to build a fault-tolerant quantum computer before the decade is over, while its current quantum processor, Condor, has 1,121 qubits. Caltech’s neutral-atom array, meanwhile, has surpassed 6,000 qubits.

However, research suggests that it would take about 3,000 logical qubits to break Bitcoin’s elliptic-curve encryption using Shor’s algorithm. According to blockchain analytics firm Chainalysis, such powerful quantum systems can emerge within 5 to 15 years.

Still, Ethereum co-founder Vitalik Buterin has warned that powerful quantum computers can break the cryptography used by Bitcoin and Ethereum in the coming years and, as such, is making “quantum resistance everywhere” a key part of the network’s long-term roadmap.

The Bitcoin developer community is also looking into measures to protect against future quantum computer threats.

Developers of the privacy coin Zcash have already begun work on a solution, quantum recoverability, which involves “designing a system that can withstand a future quantum attack even if it is not quantum-secure today.” It will provide users with a way to preserve control over their funds in the event that elliptic-curve cryptography fails.

While Zcash has captured a lot of attention and capital over these past few months, its surge in price wasn’t driven by quantum-security concerns but rather interest in its privacy technology and by momentum, where rising prices drew in additional investment.

Final Thoughts: What Crypto’s Worst Drop Since 2022 Really Tells Us

As we noted, Bitcoin’s recent tailspin is primarily driven by the Oct. 10 stablecoin malfunction on Binance, which sparked a cascade and a deleveraging cycle that turned it into a systemic liquidity drain. These two forces laid the groundwork for a broader macro-driven risk-off shift, as global uncertainty and rate-cut expectations amplified fear across all risk assets.

Secondary pressures also played a meaningful role. OG selling and ETF-related outflows added a steady supply to an already-stressed market, while concerns about DAT companies’ potential exclusion from indexes are eroding confidence. Quantum-tech fears and speculative Zcash rotation remain entirely narrative-driven for now, simply too small to materially affect flows in the current cycle.

This shows that the downturn was driven by a combination of leverage exhaustion, infrastructure fragility, and macro uncertainty, putting Bitcoin on pace for its worst monthly performance since the 2022 collapse and signaling a potential shift in regime.

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