Cryptocurrency prices have sharply declined in recent weeks, erasing much of the gains made after the election of President Donald Trump. Bitcoin, the leading cryptocurrency, has dropped nearly 30% from its peak in early October, falling to around $86,340 on Monday. Ethereum, the second-largest cryptocurrency, has experienced an even steeper decline, plummeting 40% since last month. Overall, the cryptocurrency market has lost more than $1 trillion in value during this period, according to a memo from a research strategist at Deutsche Bank.

The surge in cryptocurrency prices began after Trump’s election, with Bitcoin rising 40% in just a few weeks and surpassing $100,000 for the first time last December. After a brief dip in the spring, Bitcoin reached a record high of approximately $126,270 on October 6. However, it has since fallen by nearly $40,000. Despite this drop, Bitcoin's current price is still over 25% higher than its value on Election Day last November.

Bitcoin has a history of volatility, having lost more than 60% of its value in 2022 alone. This pattern of sharp declines has been observed in previous years, often triggered by external factors such as the pandemic. Hilary Allen, a law professor specializing in cryptocurrency policy, noted, "We’ve seen plenty of crypto crashes before," emphasizing the lack of fundamental value to support prices. "With something like crypto, the air comes out every now and then."

Several factors are contributing to the current downturn in cryptocurrency prices. Experts attribute the decline to a broader pullback in the stock market and uncertainty surrounding potential interest rate cuts by the Federal Reserve. Recent market selloffs have raised concerns about the economy, with some investors warning of a possible AI bubble. Major tech companies have invested heavily in AI, but the financial returns remain uncertain. For instance, Nvidia, a key chipmaker for AI, has seen its stock fall nearly 10% since late October, while the tech-heavy Nasdaq has dropped about 4%.

Bryan Armour, director of passive strategies research at a financial firm, explained the correlation between tech stocks and cryptocurrencies, stating, "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."

Many crypto investors had hoped for a boost from further interest rate cuts, but doubts about this policy have emerged. The Federal Reserve has cut its benchmark interest rate in its last two meetings, with expectations for another cut in December. However, persistent inflation has led some officials to express caution about additional cuts. Analysts noted that while rate cuts typically support asset prices, the fading hope for such cuts can lead to declines.

Looking ahead, experts warn that the volatility in the cryptocurrency market makes it difficult to predict future price movements. The introduction of Bitcoin exchange-traded funds (ETFs) has brought cryptocurrencies further into traditional finance, allowing more investors to participate without directly holding the assets. Despite this broader interest, digital assets continue to experience significant price fluctuations. In November alone, approximately $4.7 billion has exited crypto-related ETFs, although some smaller coins like Solana and XRP have seen increased investments. Armour remarked, "I don’t think there’s a way to know where the price will go from here."