Why Did the Crypto Market Lose $100B Post US Crypto Reserve Announcement?
The crypto market has experienced a reversal following President Trump’s announcement of a US Strategic Crypto Reserve, with total market capitalization now $100 Billion lower than before the news broke. According to data compiled by The Kobeissi Letter, the market’s initial response, which added $400 Billion in value within hours of the announcement, completely evaporated and turned negative just 36 hours later. Crypto Market Slump: Retail Investors Caught in Classic Bull Trap On Sunday at 10:24 AM ET, President Trump revealed plans for a US Crypto Reserve that would include Bitcoin, Ethereum, XRP, Solana, and Cardano. By 8:30 PM ET that evening, cryptocurrency markets had surged from approximately $2.7 Trillion to $3.1 Trillion in value. However, the crypto market capitalization plummeted to $2.6 Trillion just 24 hours later, erasing $500 Billion in a single day. Major cryptocurrencies have fallen below their pre-announcement levels, with Ethereum experiencing a particularly severe decline. After initially surging from $2,173 to $2,550 following the news, ETH plunged to $2,002, representing a 21% drop in just 12 hours and placing it 8% below its pre-announcement price. The quick price reversal has all the hallmarks of a classic retail bull trap, where market enthusiasm quickly gives way to panic selling. Prior to the US Crypto Reserve announcement, the Crypto Fear & Greed Index registered around 20, indicating “extreme fear” among traders. Following Trump’s statement, sentiment soared to approximately 55, approaching “greed” territory, before collapsing back to 24 within a day. According to The Kobeissi Letter, crypto funds posted a record $2.6 Billion outflow during the last week of February, approximately $500 Million above the previous record set earlier in 2024. This massive institutional exodus occurred just days before the reserve announcement generated retail excitement. Bitcoin, despite its inclusion in the proposed reserve, has not been spared from the downturn. The leading cryptocurrency now trades 3% below its pre-announcement levels, shedding nearly $250 Billion in market capitalization over a 12-hour period. Crypto Reserve News Triggers Global Risk-off Sentiment The primary driver behind crypto’s reversal appears to be a broader move toward risk aversion across global financial markets. According to The Kobeissi Letter, rising trade war tensions and growing economic policy uncertainty have triggered a flight to safety that has affected all risk assets, not just cryptocurrencies. This pattern was evident in Monday’s trading session as stocks, cryptocurrencies, and oil prices all fell sharply while traditional safe havens gained ground. The market reaction suggests that despite the potential long-term positive implications of a US crypto reserve, near-term macroeconomic concerns are taking precedence in investors’ minds. Ethereum’s price chart tells this story clearly. After jumping nearly 18% following the reserve announcement, ETH experienced a steep 21% decline over the next 12 hours, with much of the selling occurring during periods of broader market stress. The divergence between gold and Bitcoin performance year-to-date further reinforces this classification. While gold prices have climbed approximately 10% since January 1st, Bitcoin has declined by roughly 10% over the same period. A recent Bank of America survey cited by Kobeissi supports this interpretation, with 42% of respondents now viewing global trade wars as the most bearish development for risk assets in 2025, up from 30% in January. Futures Market Data Points to Further Turbulence Derivatives markets are providing additional insight into the crypto selloff, with futures open interest declining sharply as prices fall. According to the analysis from Matrixport, traders are actively unwinding their long positions amid mounting uncertainty surrounding trade tensions and the Federal Reserve’s monetary policy stance. Source: Matrixport Official/X The futures open interest chart from March 4, 2025, shows a decline across Bitcoin, Ethereum, and Solana contracts. Bitcoin futures open interest, which had climbed to nearly $36 Billion in January, has retreated to approximately $25 Billion. Ethereum’s open interest fell back to levels last seen in summer 2024, while Solana’s positions have similarly contracted. “We are witnessing a sharp decline in futures open interest as prices fall, indicating that some traders are unwinding their long positions amid uncertainty surrounding trade wars and the Fed’s continued hawkish stance,” noted Markus Thielen, an independent analyst monitoring the crypto market.