This was probably the worst week for crypto investors since March, with this month already nicknamed “red September”. The cryptocurrency market has entered one of its sharpest downturns in months after a 162 billion USD drop in total market capitalization, and the liquidation of more than 1,5 billion USD. Bitcoin and Ether dropped 3% and 9%, respectively. What’s the reason for this, and how do economists justify the market’s current state? Keep reading to find out how the market capitalization of digital assets came to a total of 4 trillion USD.
Last weekend (September 19–22), more than 407,000 traders liquidated (sold) their positions in the crypto derivatives market, something economists believe is the origin of this week’s sudden drop. The market shed more than 162 billion USD in overall value, a reflection of how far prices tumbled across major tokens. At the same time, about 1,5 to 1,7 billion USD in leveraged positions were liquidated, meaning traders who had borrowed heavily to bet on rising prices were forced to sell.
Falling prices caused the overall market to shrink, and that drop triggered forced sales of leveraged bets, which in turn added extra pressure and made the overall losses bigger. It’s like a snowball: the market dip starts the slide, then liquidations make it roll faster downhill.
This selloff didn’t just affect popular tokens like Bitcoin and Ether. Yahoo Finance says Dogecoin fell 13,5%, and Solana saw a decrease of 11%. Although Ethereum and Bitcoin took a smaller plunge, they suffered more losses because their market value is higher than that of other tokens. This article says that “Ethereum saw $483 million liquidated, while Bitcoin traders lost $276 million.”
Triggering factors
Piyush Shukla, from the Economic Times, ties the current market’s situation to a series of macroeconomic factors that force people to rely on safer assets, like traditional money and gold. These include rising political tensions like the Israel-Palestine conflict.
Shukla argues inflation also played a role in this crypto crash, as people witnessed the price of goods and housing going up and remained cautious of further investments, especially in such a volatile asset — after all, who wants to put money in something that’s uncertain by nature, when the world’s economy is already shaky?
The gold rush
What makes this selloff particularly notable is how it contrasts with other parts of global markets. While gold surged toward record highs near 3,720 USD an ounce and equities held relatively steady, Bitcoin and other digital assets reacted weakly to the US Federal Reserve’s recent quarter-point rate cut. Sean McNulty, Asia-Pacific derivatives lead at FalconX, said in a Bloomberg report that “the disappointment stands out compared to tradfi, where equities have held up relatively better while crypto underperforms, reinforcing the sense that this move is more idiosyncratic to the asset class.”
Correction vs bear market
If you’re new to crypto or have been dabbling for some time but don’t really understand what bearish and bullish work, Finst’s article makes for an interesting read. According to the exchange platform, there are striking differences between a correction phase and a bear market, two situations that are often confused.
A bear market lasts less — usually months and even years, with declines of more than 20% — than a correction phase, which can go from days to weeks, and cause market plunges of 10% to 30%. Corrections are related to short-term news (like government announcements, regulatory decisions, or project developments), profit-taking, or technical resistance. A bear market is harder to recover from, as it’s often caused by deeper economic issues.
What comes next
Analysts are divided about what comes next. Some warn that Bitcoin’s sudden weakness could be the early stage of a deeper crash, while others argue it may simply be setting up for a rebound. Linh Tran, a market analyst at http://XS.com, believes “this is a healthy process that reduces the risk of a sharp long squeeze and provides a stronger foundation for a sustainable trend”. He also added that this seems to be a “correction phase”.
Also, according to 99Bitcoins, institutional demand for Bitcoin spot ETFs in the States hasn’t slowed down, making some investors hopeful. It’s also in the midst of similar situations, when prices are lower, that several people end up buying crypto.
What seems clear for now is that leverage and funding dynamics played a key role in amplifying the decline. CryptoQuant data showed the funding rate for Ether perpetual futures turning negative, meaning traders betting on prices to rise had to pay extra costs to maintain positions, while short sellers were effectively being paid to stay in their trades. That shift reinforced the pressure on long holders and accelerated liquidations.
This episode highlights the fragile balance in crypto markets. When momentum fades and large players step back, the combination of heavy leverage and cascading liquidations can create the impression of a sudden collapse. Yet, as history in this market has often shown, equally sharp rebounds can follow when conditions shift.
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