The price of bitcoin has plunged. Here’s what to know about the crypto selloff

Cryptocurrency prices have cratered in recent weeks, erasing much of the meteoric rise recorded over the months following the election of President Donald Trump.

The price of bitcoin has plummeted by nearly a third since a recent peak in October, registering at about $86,340 on Monday. Ethereum, the second largest cryptocurrency, has plunged even further, dropping 40% since last month.

The total value of cryptocurrency – as measured by market capitalization – has dropped more than $1 trillion over that period, Jim Reid, a research strategist at Deutsche Bank, said in a memo to clients on Monday.

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Here’s what to know about what’s driving the selloff and where crypto is headed next:

How far have crypto prices fallen?

The election of Trump, who dubbed himself the “first crypto president,” set off a surge in the price of digital assets.

Bitcoin climbed 40% in a matter of weeks, surpassing $100,000 for the first time last December. After a dip in the spring, bitcoin rallied to a record high of about $126,270 on Oct. 6.

In recent weeks, the price of bitcoin has dropped nearly $40,000 or by about one-third. Still, the price remains more than 25% higher than where it opened trading on Election Day last November.

Bitcoin has proven highly volatile since its launch about 15 years ago.

As recently as 2022, bitcoin suffered a downturn that cut its value by more than 60%. A similar drop happened in each of the prior two years, when the pandemic helped trigger waves of buying and selling.

“We’ve seen plenty of crypto crashes before,” Hilary Allen, a law professor at American University who studies cryptocurrency policy, told ABC News, pointing to an absence of fundamental value that would otherwise anchor the price.

“With something like crypto, the air comes out every now and then,” Allen added.

What’s driving the drop in crypto prices?

Experts who spoke to ABC News attributed the decline in crypto prices to a wider pullback in the stock market as well as signs of a potential pause of interest rate cuts at the Federal Reserve.

A market selloff over recent days underscored the uncertainty looming over the economy as some investors warned of an AI bubble. As big-tech names spend hundreds of billions of dollars to build data centers and develop models for the energy-intensive technology, the financial benefits remain uncertain.

Nvidia, the giant chipmaker behind many of the semiconductors fueling AI, has fallen nearly 10% since late October. The tech-heavy Nasdaq has fallen about 4% over that period.

“Tech stocks and crypto tend to be highly correlated when they’re going down because they’re both risky assets and investors treat them similarly in their portfolios,” Bryan Armour, the director of passive strategies research at financial firm Morningstar, told ABC News.

Some crypto investors hoped for a boost from further interest rate cuts but that policy has faced growing doubts.

The Fed cut its benchmark interest rate at each of its previous two meetings, and policymakers had projected an additional quarter-point cut in December. But stubborn inflation has prompted some Fed officials to voice caution about further rate cuts.

The prospect of an interest-rate cut typically boosts asset prices, since the promise of cheaper borrowing means a potential boon for firms and their investors. But the opposite also holds true, analysts said: As hope of a rate cut fades, assets may turn lower.

When asked about the role of Fed policy in the recent crypto selloff, Armour said: “It’s another tile in the mosaic.”

What’s next for crypto?

The volatility of crypto makes it nearly impossible to predict where the price will go next, experts said, adding that the only certainty may be more volatility.

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The rise of bitcoin ETFs – exchange-traded funds – brought crypto deeper into traditional finance over the past year, since such investment vehicles have allowed customers at large brokers to invest in crypto without holding the underlying asset.

Despite a broader set of investors, digital assets have continued to fluctuate in price. In November, roughly $4.7 billion has flowed out of crypto-related ETFs, Armour said, but he noted that some ETFs tied to smaller coins like Solana and XRP have seen investments grow.

“I don’t think there’s a way to know where the price will go from here,” Armour said.