Why is the crypto market crashing today? (April 2)

The crypto market has started tanking once again, dropping 2.6% to 2.37 trillion as US President Donald Trump announced that the U.S. campaign against Iran would be entering a final phase over the coming weeks to end the conflict once and for all.

Bitcoin (BTC), the world’s largest crypto asset, fell over 4% to $66,250 amid souring market sentiment over a potential drop to $65,000, which many consider the last line of defense for a potential recovery.

Ethereum (ETH) was down 3.4%, approaching the $2,000 support, while other major crypto assets such as XRP (XRP), BNB (BNB), Solana (SOL), and Dogecoin (DOGE) posted losses between 2% and 6%. The majority of the top 100 crypto assets also shared the downward trend in the red.

As crypto prices fell, they triggered over $420 million in liquidations across leveraged markets as traders unwind their positions. The majority of this tally came from long liquidations, which saw $255 million wiped out, with Bitcoin and Ethereum accounting for around $64 million in long liquidations each, which accelerated the selloff.

The Crypto Fear and Greed Index, which shows market psychology, fell by 5 points to 27, showing increasing fear and anxiety in the market as investors expect more volatility.

Crypto prices began slipping downwards shortly after Trump said in an address to the nation on Wednesday that the U.S. military is going to hit Iran extremely hard over the coming 2 to 3 weeks to try to secure a decisive win in the ongoing war in the Middle East.

Trump warned that the U.S. would target Iranian energy infrastructures if no deal is reached. He also urged Gulf countries like Saudi Arabia, the UAE, and his allies in the region to pressure Tehran to relinquish control over the Strait of Hormuz.

Despite the rhetoric, Trump mentioned that discussions are ongoing for a ceasefire between both sides. Iran, for its part, has demanded a permanent end to the war, compensation for damages during the war, and the full withdrawal of U.S. military presence from the region.

The fresh threat of escalation pushed crude oil prices back above $100, leading to a broad selloff through crypto, stocks, and traditional safe-haven assets such as gold. Gold prices fell 4% to $4,590 today, while silver fell 7.5%. Asian stocks such as Japan’s Nikkei 225 were down 2.5% as investors moved to cash.

Surging oil prices are triggering fears of runaway inflation over the coming months. As such, the market expects the Federal Reserve to continue to hold interest rates steady or even hike them as they combat the inflation spike caused by oil prices.

Lower expectations for Fed rate cuts typically weigh heavily on risk assets like cryptocurrency.