Crypto Market Experiences Significant Decline Amid Geopolitical Tensions and Market Correction

The cryptocurrency market is facing a sharp downturn on February 28, with the total market capitalization plummeting by 6.4%, bringing it down to approximately $2.65 trillion. The market's struggles are attributed to several factors, including escalating trade tensions, a broad risk-off sentiment among investors, and technical resistance hindering any recovery attempts.

Escalating Trade Tensions Spark a Risk-Off Mode

The immediate trigger for the current market sell-off stems from U.S. President Donald Trump's announcement on February 27 that the U.S. will proceed with additional tariffs on goods from Canada, Mexico, and China. Trump stated that a 10% tariff would be added to Chinese imports, bringing the total tariff to 20%. Additionally, he reinforced that the previously proposed tariffs on Canadian and Mexican imports would go into effect on March 4.

These geopolitical developments have fueled investor concerns, leading to a risk-off sentiment across financial markets. Investors are seeking safer assets, which has increased demand for the U.S. dollar and further pressured cryptocurrencies, which are often seen as higher-risk assets.

Bitcoin Leads the Market Decline

As a result of these factors, Bitcoin, the leading cryptocurrency, saw a significant drop on February 28, falling below $80,000 for the first time since November 2024. Bitcoin dropped as much as 9.5% from a high of $86,988 to its current price of $79,400. This sharp decline triggered panic selling across the broader crypto market.

Other major cryptocurrencies followed suit, with Ether (ETH) extending its losses from the previous days, dipping below $2,000. XRP, Solana (SOL), and Binance Coin (BNB) all saw notable declines of around 10%. Dogecoin (DOGE) and Cardano (ADA) suffered the largest losses among the top 10 cryptocurrencies by market capitalization, both losing 11% over the past 24 hours.

Liquidations Amplify the Downturn

The market’s downturn was compounded by significant leveraged liquidations. Over the past 24 hours, approximately $879 million in leveraged positions were liquidated across all crypto exchanges. This includes $380.5 million worth of long Bitcoin positions being forcibly closed, exacerbating the market's decline. The dominance of long liquidations indicates that many investors were over-leveraged on the bullish side, and the market is now facing the consequences of these positions being wiped out.

This sell-off mirrors previous corrections, such as the $1.25 billion in long liquidations on February 3, which coincided with a 16% drop in the overall market, wiping out over $570 billion in value.

Correlation Between Crypto and Equities

The ongoing correction in the cryptocurrency market is also reflective of broader weakness in U.S. equities. On February 27, the S&P 500 dropped by 1.94%, while the Nasdaq composite index fell by 2.75%, and the Dow Jones index closed down 0.5%. The crypto market’s movements have increasingly been in sync with U.S. stock markets, signaling that cryptocurrencies are no longer acting as a hedge against uncertainty, as they were previously perceived to do.

Some market analysts, like The Kobeissi Letter, have pointed out that the crypto market has experienced a drastic decline, losing more than $800 billion since January 20. Despite President Trump’s pro-crypto stance, Bitcoin’s price has moved in near lockstep with the S&P 500, correlating 88% of the time at its peak.

Technical Resistance Adds to the Downward Pressure

From a technical perspective, the combined market capitalization of all cryptocurrencies (TOTAL) has faced significant resistance at the 50-weekly simple moving average (SMA), which now stands at $2.58 trillion. This level, which previously acted as support, has now become an immediate resistance zone, further hindering any potential recovery.

The weekly relative strength index (RSI) has also dropped significantly from a positive level of 56 last week to 42, signaling that the market is currently favoring the downside. Bears are now eyeing a key demand zone between $2 trillion and the $1.69 trillion low, which was reached during the first week of August 2024. This zone is critical, as both the 100-weekly and 200-weekly SMAs reside within this range and have served as reliable support levels for the market since October 2023.

Outlook: Will Crypto Find Support at Lower Levels?

If the market fails to find support within the current range, a deeper decline could be in store. However, if buying pressure returns and the market can push back above the 50-weekly SMA, it could signal a potential reversal. This would suggest that investors are aggressively accumulating assets at lower levels and following the common sentiment to “buy the dip.”

The next few weeks will be crucial in determining the direction of the crypto market, as traders and investors watch for signs of stabilization or further downward movement.