The cryptocurrency market has wiped out nearly all its year-to-date gains in just over a month, catching investors who were optimistic about digital assets at the start of the year off guard.

Latest data shows the total crypto market capitalization has plunged 20% from its October 6 peak of $4.4 trillion, leaving year-to-date gains at just 2.5%. The rapid decline was triggered by the sudden liquidation of approximately $190 billion in leveraged positions, severely damaging market confidence.

Bitcoin has fallen 8% this week, on track for its worst weekly performance since March, and has broken below the critical 200-day moving average - a key support level that had held since the 2022 bear market. More strikingly, the total digital asset market cap has now fallen below levels seen when Trump took office, despite his strong push to make the U.S. a global crypto hub.

Market participants warn that mainstream participation may remain weak amid the absence of near-term catalysts and persistent security and regulatory concerns. However, after six consecutive days of net outflows, U.S. spot Bitcoin and Ethereum ETFs recorded $253 million in net inflows on Thursday, showing some signs of stabilization.

Leverage Liquidation Triggers Chain Reaction The current downturn originated from massive leveraged position liquidations in early October.

According to CoinGecko data, after reaching a historic peak of nearly $4.4 trillion on October 6, the total crypto market cap began a rapid descent. The sudden liquidation of about $190 billion in leveraged positions within days of hitting record highs became the catalyst for the collapse in market confidence.

This performance has shocked the market, as 2025 was supposed to be the year when regulators, global banks, and institutional investors embraced digital assets more closely. Trump's policies to position the U.S. as a global crypto hub had sparked a wave of activity that drove Bitcoin up by as much as 35%.

However, the speed of the sentiment reversal has been astonishing. The digital asset market cap has now fallen below pre-Trump inauguration levels, highlighting the extreme volatility of cryptocurrency markets.

Notably, while the recent crypto sell-off has been broad-based, the steepest declines have been concentrated in altcoins - smaller, more volatile tokens that have significantly underperformed this year.

Augustine Fan, partner at SignalPlus, noted: "Outside of Bitcoin and Ethereum, cryptocurrencies have largely been on the back foot for months. There's been little new money flowing into altcoins or DeFi projects."

Fan added that mainstream participation may remain weak without near-term catalysts and amid ongoing security and regulatory concerns. This divergence suggests that even in a pressured broader market, investors prefer allocating to relatively mature mainstream digital assets.

AI Stock Valuation Concerns Spill Into Crypto Markets Jeff Mei, COO of crypto exchange BTSE, believes the latest decline in digital assets is partly driven by "concerns over severe overvaluation of AI stocks." He warned: "If we see selling in AI and tech stocks, Bitcoin could likely break below the $100,000 level, with altcoins falling even deeper."

This view underscores the increasingly tight correlation between cryptocurrencies and traditional tech stocks. As institutional investors increase their allocations to digital assets, crypto markets are becoming more vulnerable to shifts in broader market sentiment and risk appetite.

Concerns about overvaluation in AI-related stocks are spreading across the tech sector, putting pressure on cryptocurrencies as risk assets. This cross-market transmission effect shows digital assets are no longer a completely independent investment category.

ETF Flows Show Signs of Stabilization Despite the gloomy overall market performance, there are some signs of stabilization. After six consecutive days of net outflows, U.S. spot Bitcoin and Ethereum ETFs recorded $253 million in net inflows on Thursday, according to reports.

This shift in fund flows may indicate some institutional investors are beginning to see current price levels as attractive entry points. As a key channel for traditional investors to access crypto markets, ETF flows often reflect institutional sentiment changes.

However, whether this single day's inflow can be sustained remains to be seen. Market participants generally believe that without clear positive catalysts, cryptocurrency markets may continue facing pressure.