Decoding the Crypto Selloff: Why Is Crypto Market Down This Week?

Question

The cryptocurrency market experienced a sharp reversal on Monday as macro headwinds collided with profit-taking activity. The total digital asset market capitalization retreated by approximately 3% to $3.69 trillion, while Bitcoin (BTC) and Ethereum (ETH) led the downside, falling toward $107,900 and $3,753 respectively.

The Liquidation Cascade: When Leverage Becomes Liability

What started as a moderate selloff quickly escalated into a liquidation event of significant scale. Data shows 162,000 traders faced forced closes within a single 24-hour window, with total liquidations reaching $395.7 million. The composition of these liquidations tells an important story: $334.7 million stemmed from long positions, revealing that the market’s leveraged bulls were caught off-guard by the sudden momentum shift.

The severity intensified as Bitcoin (BTC) dipped below the psychological $107,500 level, triggering cascading liquidations across the board. Ethereum (ETH) absorbed the heaviest losses in liquidation volume at $85.6 million, shadowed by Bitcoin’s $74.6 million and Solana’s $35 million. Volatility experts are now monitoring a critical technical floor—should BTC break below $106,000, models suggest an additional $6 billion cascade could unfold, potentially accelerating the correction.

Federal Reserve Messaging Shift: The Catalyst Behind Market Caution

The underlying trigger for this downturn traces back to shifting monetary policy signals. Federal Reserve Chair Jerome Powell recently tempered expectations of continuous rate relief, stating that December’s next cut is far from assured. This commentary followed October’s 25 basis-point reduction, recalibrating market expectations for the pace of easing.

Adding to this cautious backdrop, U.S. Treasury Secretary Scott Bessent signaled concern that monetary tightening had already “pushed segments of the economy, particularly housing, into challenging territory.” Such warnings highlighted a paradox—potential rate cuts may reflect economic fragility rather than confidence in a smooth landing scenario.

The probability calculus shifted materially. The CME FedWatch Tool now reflects only a 69.3% likelihood of a December rate cut, a substantial pullback from the elevated expectations that prevailed weeks earlier. This mathematical repricing of policy expectations created headwinds for risk assets broadly.

Institutional Repositioning: Bitcoin ETF Outflows Signal Caution

Beyond retail liquidations, institutional sentiment deteriorated notably. U.S. spot Bitcoin ETFs experienced $1.15 billion in redemptions during the recent week, with significant withdrawals attributed to major asset managers reducing their digital asset allocation. This institutional de-risking typically precedes or accompanies deeper selloffs, as it signals reduced conviction among sophisticated investors navigating heightened macro uncertainty.

Altcoin Weakness and Market De-Risking

The broader alternative token market bore magnified losses, reflecting classic risk-off behavior. The top 50 altcoins declined nearly 4% over 24 hours, with notable weakness distributed across:

Ethereum (ETH): −4.4% to $3,734
BNB: −4.8% to $1,039
XRP: −3.4% to $2.45
Uniswap (UNI): −9% decline
Dogecoin (DOGE): −6.9% pullback

Bitcoin dominance expanded to 60.15%, reflecting a predictable market dynamic—as uncertainty rises, capital migrates toward perceived safety, elevating Bitcoin’s proportional weight in the total market.

Profit-Taking Amid Macro Uncertainty

The decline also coincided with profit harvesting after the market had briefly approached $3.81 trillion earlier, buoyed by optimism surrounding trade negotiations between the United States and China. However, this bullish sentiment proved temporary and fragile. Market participants adopted defensive positioning ahead of Friday’s employment data release, recognizing that this economic report will likely influence the Federal Reserve’s policy trajectory for the remainder of the year.

Consensus forecasts point toward moderating job creation and stable unemployment figures, painting a picture of economic resilience that remains somewhat brittle.

Market Sentiment Trapped in Caution Zone

The Crypto Fear and Greed Index currently sits at 42, firmly planted within the fear territory that has characterized sentiment despite intermittent relief rallies. Bitcoin (BTC) closed the prior month down 3.7%, representing its most challenging “Uptober” since 2018—traditionally a bullish month for digital assets.

This combination of weakened technicals, institutional caution, and macro uncertainty suggests traders will likely continue trimming exposure to risk assets until macroeconomic conditions clarify or policy expectations stabilize. The path forward hinges on employment data interpretation and any fresh Fed messaging that reshapes rate cut probability assessments.