The cryptocurrency market is experiencing significant losses, with Bitcoin dropping 5.55% in the last 24 hours to $99,180—down from $104,800 at midnight. Ether has plummeted by 8.02%, XRP by 11.04%, Cardano by 11%, Solana by 12%, and Dogecoin by 11.4%. But what is causing this sudden decline?
The Correlation Between Tech Stocks and Cryptos
Some analysts have attributed the decline to investor uncertainty ahead of the US Federal Reserve meeting on Wednesday. However, a closer look at the charts suggests a different explanation. There is a clear correlation between the movement of tech stocks and cryptocurrencies.
Since last Thursday, Bitcoin’s price movement (marked in blue) has mirrored the US100 CFD index for the American tech sector (marked in red). When the tech market opened in futures and CFDs overnight, it took a sharp downturn. At that very moment, Bitcoin, Ether, Solana, XRP, and Cardano also saw steep declines.
The reason? Investor panic over stocks such as Nvidia, TSMC, and ASML, driven by concerns over China’s new artificial intelligence platform, DeepSeek. This emerging AI model reportedly does not require the latest high-performance chips, raising fears that demand for such components could decline sharply. While it is unclear whether this trend will materialize, uncertainty has triggered panic in the markets.
For crypto investors, the key question remains: why should a stock market crash affect digital assets? The answer lies in market sentiment. Cryptocurrencies, like tech stocks, are considered high-risk investments. When investor confidence is strong, funds flow into both sectors. Conversely, when risk appetite diminishes, investors pull money out of these volatile assets. This dynamic—known as “Risk On” and “Risk Off” trading—has been evident in today’s market movements.
Bloomberg’s Take on the Market Plunge
Bloomberg attributes the crypto downturn to profit-taking by traders, just days after former President Donald Trump signed an executive order recognizing digital assets as a key driver of US innovation. Bitcoin tumbled by over 6.5% in early European trading on Monday, briefly falling below $98,000 before recovering some losses. Smaller tokens suffered even steeper declines, with Solana and XRP dropping by around 11% and 14%, respectively. Ether also saw an 8% drop.
The sell-off followed Trump’s order, issued last Friday, directing the creation of a working group to advise the White House on cryptocurrency policy. This task force has six months to propose a regulatory framework for digital assets and evaluate the feasibility of a national crypto reserve. Notably, the executive order did not confirm plans for a US Bitcoin reserve—something Trump had hinted at during his campaign.
Despite the market’s initial enthusiasm for regulatory clarity, Sean McNulty, head of APAC derivatives at FalconX, noted that investors had already priced in 90% of the expected policy changes. “Anything short of an immediate Bitcoin reserve purchase would have been disappointing,” he remarked.
Following Trump’s election victory in November, Bitcoin surged by over 50%, reflecting a shift in the former president’s stance on cryptocurrencies. Once a skeptic, Trump embraced digital assets during his campaign, partly due to increased industry lobbying and political donations. He has since vowed to establish the US as the global leader in cryptocurrency innovation, appointing venture capitalist David Sacks as his administration’s crypto and AI policy chief in December.
While today’s sell-off has rattled investors, the broader trajectory of digital assets remains uncertain. Whether cryptocurrencies will continue their correlation with tech stocks or regain independence as a distinct asset class remains to be seen.
