What's Behind This crypto market crash? Three Macro Forces Reshaping Digital Assets

The digital asset market faced significant headwinds in early 2025, with the overall crypto market crash accelerating as multiple macro factors converged. The total cryptocurrency valuation dipped to around $3.08 trillion, marking a 2% pullback in just 24 hours. Bitcoin, the market bellwether, retreated to $90,000 from its year-to-date peak near $98,000, while Ethereum declined 4% toward the $3,000 level. Altcoins including Solana, Dogecoin, and Monero all posted losses exceeding 3%. Today’s market dynamics reveal three interconnected pressures that continue to weigh on risk assets globally.

The Yen Carry Trade Unwind: Why Rising Japanese Rates Threaten Crypto

One of the most powerful forces behind the crypto market crash stems from Japan’s monetary policy shift. Japanese government bonds recently climbed to multi-year peaks as expectations grew that the Bank of Japan would maintain a hawkish stance throughout 2025. Prime Minister Sanae Takaichi’s pledge to implement additional tax cuts ahead of February elections has only intensified rate-hike expectations.

Citigroup’s research team projected that the Bank of Japan will deliver three rate increases this year, potentially pushing the headline rate to 1.50%—a level unseen in decades. This policy tightening has profound implications for cryptocurrency markets through the so-called carry trade mechanism. The carry trade represents a strategy where investors borrow money in low-interest-rate currencies (historically the yen) and deploy capital into higher-yielding assets worldwide. As Japanese rates rise, this arbitrage opportunity evaporates, forcing investors to unwind positions across risky asset classes including Bitcoin, altcoins, and other speculative holdings. This forced liquidation cascade amplifies the crypto market crash, creating a feedback loop of selling pressure that extends beyond cryptocurrency into global equities and commodity markets.

Trump’s Tariff Threats Trigger Global Risk-Off, Pulling Crypto Down

The second significant headwind emerged from escalating geopolitical tensions and trade policy uncertainty. President Donald Trump’s announcement of new tariffs on key U.S. allies—including the United Kingdom, Norway, Sweden, and Denmark—has rattled markets already grappling with the crypto market crash. These tariff threats stem from broader tensions with NATO and European partners, triggered by Trump’s recent assertions about U.S. control over Greenland, a topic he raised just before attending the World Economic Forum in Davos.

The rhetoric escalated tensions with European leaders, including French President Emmanuel Macron and British officials, raising prospects of a renewed transatlantic trade war. The EU responded by threatening reciprocal duties on up to €93 billion in American imports, a move that would further destabilize economic relations and investor confidence. When geopolitical uncertainty spikes, institutional capital typically rotates away from speculative assets like cryptocurrencies toward traditional safe havens. The Supreme Court is poised to rule on the legality of Trump’s tariffs this week, but market participants tracked on Polymarket estimate that clarity from the court is unlikely, regardless of the outcome. This sustained uncertainty continues to feed the crypto market crash as risk-averse positioning dominates trading floors globally.

Futures Market Pullback: When Open Interest Drops, Liquidations Rise

A third technical factor reinforces the downward pressure on digital assets. Data from CoinGlass reveals that cryptocurrency futures open interest declined to $136 billion, retreating from January’s monthly high of $146 billion. Falling open interest represents a bearish signal—it indicates weakening demand from leveraged traders and institutions using futures markets for exposure or hedging.

When open interest contracts, it typically precedes or accompanies sharp price declines because reduced leverage means fewer bid orders supporting price floors. Additionally, as positions unwind, cascading liquidations can trigger automated selling, exacerbating the crypto market crash. This technical deterioration compounds the macro headwinds from yen carry trade unwinding and trade policy uncertainty, creating a perfect storm scenario where fundamental weakness meets technical breakdown.

What’s Next for Crypto Markets

The convergence of rising Japanese interest rates, trade war threats, and declining futures positioning creates a challenging environment for risk assets. While current price levels may feel discouraging to long-term holders, these downturns have historically preceded recovery phases as macro conditions normalize. Monitoring the Bank of Japan’s policy trajectory, Supreme Court tariff ruling, and changes in futures open interest will be crucial for understanding when the crypto market crash may stabilize and reverse.