Understanding Why Crypto Is Crashing: From Tariff Wars to Leverage Unwinding

The crypto market took a sharp hit in recent days, with the recent pullback revealing more than just technical selling pressure. To understand why crypto is crashing, we need to look beyond the charts and examine the confluence of geopolitical tensions, macro economic uncertainty, and excessive leverage that created a perfect storm. As of late January 2026, Bitcoin has declined to $84.56K (down 5.45% over 24 hours), while Ethereum dropped 6.65%, XRP fell 5.94%, and Dogecoin declined 7.03%, painting a picture of broad-based weakness across major cryptocurrencies.

Geopolitical Shock Sparked the Selloff

The trigger wasn’t crypto-specific at all. Reports emerged that the European Union was preparing up to $100 billion in retaliatory measures against the United States in response to escalating trade threats from President Donald Trump tied to Greenland. This immediately revived dormant fears of a full-scale trade war—something the market had largely stopped pricing in over recent months.

When U.S. futures opened lower on the heels of this news, risk assets across all sectors began to decline. Crypto, being one of the most sensitive risk assets, followed suit. In a compressed timeframe, Bitcoin tumbled approximately $3,600 from nearby highs, and roughly $130 billion was wiped from the total crypto market capitalization in just 90 minutes. This wasn’t gradual distribution; it was a sudden repricing of political and economic risk.

How Leverage Turned a Dip Into a Crash

While geopolitical anxiety lit the fuse, it was excessive leverage that turned a modest correction into a sharp decline. According to data from CoinGlass, $124.32 million in Bitcoin long positions were liquidated over 24 hours—a staggering 2,615% jump compared to the previous day. This spike illustrates just how stretched and overleveraged positioning had become before the move.

Compounding this, derivatives open interest had surged nearly 27% to $688 billion, revealing that traders were heavily concentrated on the long side heading into the downturn. Once Bitcoin started slipping below key support levels, forced selling intensified. Each wave of liquidations triggered additional selling pressure, which in turn triggered more liquidations. This created a self-reinforcing negative feedback loop that accelerated the decline faster than fundamentals alone would suggest.

The $92.5K Decision Point

From a technical standpoint, $92,500 has emerged as the critical level to monitor. Should Bitcoin hold comfortably above this zone, the current move can still be characterized as a leverage flush and potential consolidation before further upside. However, if Bitcoin breaks decisively below this level, an estimated $200 million or more in additional liquidations could cascade through the market.

Below that threshold, mechanical selling risk rises sharply as stop-loss orders and liquidation triggers activate. So far, buyers have shown some willingness to defend the area, but the market structure remains fragile with volatility still elevated.

Macro Risk Now Dominates the Market

The bigger narrative extends beyond technical mechanics. President Trump’s announcement of 10% tariffs on EU imports—with threats to escalate to 25% by June—fundamentally shifted how traders view near-term market stability. While these tariff policies have no direct connection to crypto regulation, digital assets remain tightly coupled to global risk sentiment.

Interestingly, crypto’s correlation with the Nasdaq 100 has turned negative over the past week, registering near -0.41 on a 7-day basis. This divergence suggests that crypto is no longer simply tracking technology stocks, but instead reacting more directly to macroeconomic uncertainty and geopolitical developments. In essence, this selloff wasn’t about Bitcoin’s fundamentals weakening or Ethereum losing technical merit—it was about markets rapidly recalibrating their view of political and economic risk in an increasingly unstable environment.

This serves as a reminder that in the modern market landscape, macro factors often move faster and more dramatically than on-chain metrics, and positions sized for a benign environment can quickly become destabilizing when sentiment shifts abruptly.