The cryptocurrency market witnessed about $920 billion in liquidation in the past few days, driven by a massive sell-off in the technology sector. This event highlights the volatile nature of digital assets and their strong correlation with broader financial markets, particularly tech stocks.
Bitcoin, the leading cryptocurrency, fell to an 11-day low, trading below $100,000. Other major cryptocurrencies, including Ethereum, XRP, Solana, and Dogecoin, also recorded significant declines. Analysts attribute this downturn to the close relationship between Bitcoin and tech equities, especially the Nasdaq 100.
Market sentiment has also been affected by concerns over U.S. Federal Reserve policies. Investors expect the Fed to maintain higher interest rates, which traditionally reduces risk appetite across asset classes, including cryptocurrencies.
The sell-off has been linked to the recent launch of an open-source AI model by Chinese startup DeepSeek, which has intensified competition in the AI sector. This has led to a sharp decline in U.S. tech stocks, impacting the broader market, including cryptocurrencies.
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The coming days will be crucial as investors await the first Federal Open Market Committee (FOMC) meeting of the year. Any signals of higher interest rates could further delay a recovery in the crypto market.
Despite the current volatility, history shows that the cryptocurrency market has rebounded from major crashes before. Past crises, such as the Mt. Gox collapse in 2014, the Terra/Luna crash in 2022, and the bear markets of 2018 and 2022, eventually led to recoveries, driven by innovation and increasing adoption.
While the short-term outlook remains uncertain, the long-term trajectory of the crypto market could still point toward growth.
