Why Is Crypto Crashing & Will It Recover?

Navigating the Sea of Red

Red candles, liquidations, and widespread fear—the crypto market is in the midst of a significant crash. For many, the urgent questions are: why is this happening, and when will it end?

The cryptocurrency market has experienced one of its most severe downturns in 2025, with Bitcoin briefly falling below $90,000 in mid-November after reaching all-time highs above $126,000 in early October. This represents a decline of more than 26%, erasing all gains for the year and marking the longest sustained selloff since early 2023. Ethereum, Solana, and other major altcoins have fallen by similar or greater magnitudes, with some highly leveraged positions experiencing losses exceeding 50%.

A crypto market crash is defined as a sudden and sharp drop in the prices of most cryptocurrencies, leading to a significant decrease in total market capitalization. The current crash has wiped approximately $370 billion off the total crypto market cap, according to CNN Business, with trading volumes spiking dramatically as panicked holders exit positions. For those monitoring crypto prices today, the sustained decline represents one of the more dramatic corrections in recent cryptocurrency history.

This article will break down the primary factors causing the current crypto crash. We will analyze the macroeconomic pressures, internal market dynamics, and key technical levels to watch. Finally, we will provide a forward-looking perspective on whether the market is likely to recover and what timeline that recovery might follow.

The Macroeconomic Storm: The #1 Driver

Inflation and Interest Rates

Crypto, as a risk asset, is highly sensitive to the policies of central banks, particularly the U.S. Federal Reserve. The recent downturn has been significantly driven by changing expectations around monetary policy. Throughout most of 2024 and early 2025, markets anticipated multiple interest rate cuts that would provide liquidity and support risk assets like cryptocurrency.

However, persistent inflation data has pushed back expectations for rate cuts. According to the CME FedWatch tool, the probability of a December 2025 rate cut has fallen from 90% in October to approximately 50% as of mid-November. This dramatic shift in expectations has created powerful headwinds for speculative assets that thrive in low-rate environments.

The mechanism is straightforward. When Treasury bonds offer yields approaching 5% with minimal risk, as the 10-year Treasury currently does with yields around 4.2%, speculative investments face intense competition for capital. Institutional allocators who might otherwise consider crypto exposure can achieve reasonable returns through traditional fixed-income investments without the volatility that characterizes digital assets. This dynamic creates sustained selling pressure as capital rotates from risk-on assets like crypto to safer alternatives.

Global Economic Uncertainty

Other global macroeconomic factors compound these monetary policy pressures. Geopolitical tensions, particularly U.S.-China trade relations, have created additional uncertainty weighing on risk assets. President Trump’s reintroduction of aggressive tariffs in 2025, including 15% tariffs on U.S. coal and LNG products, coupled with 10% tariffs on American crude oil, spooked global markets, according to analysis from Bankless Times.

Economic slowdown indicators from major economies have also contributed to risk-off sentiment. Softer growth data from Asia, weakening Chinese equities, and concerns about tech stock valuations have prompted investors to de-risk their portfolios broadly. During periods of economic uncertainty or potential recession, investors typically reduce exposure to volatile assets regardless of long-term conviction, creating selling pressure that persists even when fundamental crypto metrics remain strong.

Internal Market Dynamics: The Crypto-Specific Factors

Long-Position Liquidations

One of the most dramatic aspects of the current crash has been the scale of forced liquidations. The cryptocurrency market experienced what many analysts describe as the largest liquidation event in its history during October 2025. Initial estimates placed total liquidations at $19-20 billion, though some unconfirmed reports suggested figures as high as $10 billion on a single day due to overloaded API feeds from exchanges.

Record liquidations during the October 2025 crash intensified selling pressure. Source: CoinGlass.

Leverage amplifies both gains and losses in cryptocurrency trading. Many traders borrow money to increase position sizes, a high-risk play that has become standard practice in crypto markets. When Bitcoin dropped sharply in October from its $126,000 high, leveraged long positions faced margin calls. In markets with concentrated derivatives positioning, even small price moves can trigger large forced sales.

The liquidation mechanism creates a cascading effect. As prices decline, exchanges automatically close leveraged positions that no longer meet margin requirements. These forced sales push prices lower, triggering additional liquidations in a self-reinforcing cycle. According to data from CoinGlass cited by multiple sources, liquidations reached record levels and continued at elevated rates through November, with $728 million liquidated in a single 24-hour period as recently as mid-November.

The psychological impact of the October liquidation event has persisted well beyond the initial crash. As George Mandres, senior trader at XBTO Trading, noted: “10th October is definitely a longer-lasting shock to the market than it appears on the surface. It will remain deeply embedded in the appetite of market-makers to provide liquidity and in market participants’ conviction and risk appetite.”

Fading Narratives

The hype around previous hot narratives may be cooling off, leading to profit-taking in those sectors and a lack of new capital to prop up the market. Throughout 2024 and early 2025, specific cryptocurrency sectors, including AI tokens, DePIN (decentralized physical infrastructure networks), and gaming projects, captured significant attention and capital inflows.

As these narratives mature without delivering immediate utility or adoption, early investors have begun taking profits. The rotation out of speculative altcoins accelerated during the October crash and has continued through November. Without fresh narratives driving new capital inflows, the overall market lacks the buying pressure necessary to absorb selling from profit-takers and forced liquidations.

Bitcoin’s Dominance

A sharp drop in Bitcoin price inevitably drags the entire altcoin market down with it. When Bitcoin dropped from $126,000 to below $96,000, altcoins suffered even more severe damage. With Bitcoin dominance already elevated at approximately 57-60% throughout 2025, having steadily climbed from 38.4% in early 2023, altcoins had limited market share to cushion against Bitcoin’s decline.

This high dominance environment meant that when Bitcoin corrected, altcoins experienced even steeper percentage losses, as capital remained concentrated in Bitcoin rather than rotating between asset classes. Managing diversified holdings across multiple assets becomes more challenging during such periods.

The Technical Picture: Key Levels to Watch

Total Crypto Market Cap Chart

The total crypto market capitalization fell from over $4.3 trillion in early October to around $3.27 trillion by mid-November, representing a loss of more than $1 trillion. Key support levels that technical analysts monitor include the $3 trillion psychological level and the previous cycle highs from 2021.

If total market cap breaks decisively below $3 trillion, it could trigger additional selling pressure as stop-losses activate and long-term holders capitulate. Conversely, holding above this level and forming a base could set up conditions for eventual recovery once macro conditions improve.

Bitcoin’s 200-Day Moving Average

Bitcoin’s 200-day moving average represents a critical technical indicator watched closely by both retail and institutional traders. This long-term trend indicator currently sits around $85,000-90,000, varying slightly based on calculation methodology. Bitcoin briefly tested this level in mid-November before rebounding slightly.

A sustained break below Bitcoin’s 200-day moving average is considered a classic signal of a long-term bear market. During previous bear markets in 2018 and 2022, Bitcoin remained below its 200-day moving average for extended periods, with rallies above the line consistently failing and price returning to lower lows. The current test of this level represents a pivotal moment that could determine market direction for the coming months.

However, technical analysis should be interpreted with caution. In 24/7 markets influenced by global macroeconomic events, technical levels can break decisively without following historical patterns. The 200-day moving average provides context but cannot predict whether current selling pressure will overwhelm support.

Will Crypto Recover? The Outlook

The Bullish Case for Recovery

These crashes are a normal and healthy part of the crypto market cycle. They wash out excess leverage and allow for a more sustainable recovery. Historical precedent strongly supports the case that cryptocurrency markets recover from even severe crashes.

The long-term fundamentals supporting cryptocurrency adoption remain intact. The Bitcoin halving that occurred in April 2024 reduced new supply issuance, creating supply dynamics that historically precede bull markets. The approval of spot Bitcoin and Ethereum ETFs in 2024 established regulatory precedent and infrastructure for institutional participation, even if recent flows have been negative.

Spot Bitcoin ETFs have seen $1.2 billion in outflows recently, according to Bankless Times, and Ethereum ETFs have shed over $2 billion in recent months. However, these products remain in place and positioned to capture institutional capital when risk sentiment improves. The infrastructure built during the 2024-2025 period provides mechanisms for recovery that didn’t exist during previous bear markets.

Moreover, crashes create accumulation opportunities. Long-term holders who weathered previous bear markets by accumulating during periods of maximum fear have historically achieved exceptional returns. Bitcoin’s history shows consistent recovery from 70-80% drawdowns, with each cycle ultimately reaching new all-time highs.

The Bearish Case for a Deeper Crash

The counter-argument suggests that if macroeconomic conditions worsen substantially, the crash could be deeper and more prolonged than many expect. Several factors could extend or deepen the current downturn.

A major global recession would likely trigger sustained crypto selling regardless of internal market dynamics or technical support levels. If central banks are forced to maintain elevated interest rates due to persistent inflation, or if economic contraction accelerates, risk assets like cryptocurrency could face years rather than months of difficult conditions.

The lingering psychological impact of the October liquidation event has reduced market depth and liquidity. Order books across major centralized exchanges remain structurally thinner than before the crash, according to multiple market structure analysts. This reduced liquidity means that subsequent selloffs can move prices more dramatically, potentially triggering additional liquidation cascades even from modest declines.

Regulatory uncertainty also presents ongoing risk. While the Trump administration has expressed interest in crypto-friendly policies, concrete implementation has been limited. Without clear regulatory frameworks, institutional adoption may remain constrained, limiting the capital available to support higher valuations.

Realistic Outlook

A recovery is likely, but it will take time. The market will need a catalyst, such as a clear signal of interest rate cuts from the Federal Reserve, to regain its bullish momentum. Historical patterns suggest bottoming processes require multiple months of consolidation before sustained recoveries begin.

The most probable scenario involves continued volatility with potential retests of recent lows before establishing a firm bottom. For those seeking to buy crypto during this period, dollar-cost averaging strategies can reduce timing risk while building positions gradually. The ability to swap crypto between different assets also enables tactical rebalancing as relative valuations shift during market turbulence.

Conservative timelines for recovery place meaningful upside movement in Q2 or Q3 of 2026, assuming macroeconomic conditions stabilize and the Federal Reserve begins cutting rates. More optimistic scenarios could see recovery beginning in late Q1 2026 if crypto-specific catalysts like strong ETF inflows or positive regulatory developments materialize sooner.

Conclusion: Surviving the Crash

The current crypto crash results from a combination of macroeconomic headwinds and internal market liquidations. Persistent inflation pushing back rate cut expectations, geopolitical uncertainty, and the psychological aftermath of October’s record liquidation event have created powerful selling pressure.

While crashes are painful, they also represent opportunities for patient, long-term holders to accumulate quality assets at discounted prices. History suggests that periods of extreme fear, such as when the Fear & Greed Index reaches levels around 22-25, as it has recently, often mark better entry points than periods of euphoria.

For active traders, capital preservation becomes the top priority during crashes. Avoiding excessive leverage, maintaining appropriate position sizing, and preserving liquidity to capitalize on eventual recovery represent prudent approaches. Those managing holdings in secure crypto wallets rather than keeping substantial amounts on exchanges can better weather volatility without forced liquidation risk.

The path forward requires patience, discipline, and realistic expectations. Recovery will likely be gradual rather than sudden, with multiple false starts and retests of lows before sustainable uptrends emerge. Those who survive crashes with portfolios intact and conviction strengthened typically achieve the best long-term results.

Navigating a market crash requires a clear head and a solid plan. Use Digitap to manage your risk, monitor the market, and prepare for the eventual recovery with institutional-grade tools designed for volatile market conditions.

FAQs

Is now a good time to buy crypto?

Timing exact bottoms is extremely difficult. Historical patterns suggest buying during extreme fear produces strong long-term returns, but further downside remains possible. Dollar-cost averaging reduces timing risk while building positions gradually during weakness.

How do I know when the crash is over?

Key signals include stabilization above Bitcoin’s 200-day moving average, sustained positive ETF inflows, declining liquidation volumes, and the Fear & Greed Index moving out of extreme fear territory. Recovery typically requires multiple weeks of consolidation before sustained uptrends begin.

What is a liquidation cascade?

A liquidation cascade occurs when falling prices force exchanges to automatically close leveraged positions, creating selling that pushes prices lower and triggers additional liquidations. This self-reinforcing cycle can produce dramatic crashes in short periods, as seen in October 2025’s $19-20 billion liquidation event.

How do interest rates affect crypto?

Higher interest rates make safe assets like Treasury bonds more attractive, pulling capital away from speculative investments like crypto. Lower rates reduce returns on safe assets, pushing capital toward riskier alternatives. Crypto typically performs best in low-rate environments.

What are the safest cryptocurrencies to hold during a crash?

Bitcoin and Ethereum typically experience less severe drawdowns than altcoins during crashes due to their liquidity and established track records. However, no cryptocurrency is truly “safe” during severe market downturns. Diversification and appropriate position sizing matter more than individual asset selection.