Crypto was hit by another wave of selling this morning.

The total market has dropped over 3% of its value over the past 24 hours and is now worth just over $3.7 trillion.

Tuesday’s market wipeout comes as spot Bitcoin exchange-traded funds have seen $1 billion in outflows over the past four days, according to SoSoValue, highlighting investors’ shaken confidence.

Now, analysts see more trouble on the horizon.

“Volatility is heating up across BTC and ETH as markets grapple with fears of a renewed US-China trade war and a bursting AI bubble,” Sean Dawson, head of research at Derive, said in a Tuesday blog.

Volatility data shows the market entering its most turbulent stretch since July, just as the artificial intelligence bubble bursts, Dawson said.

Traders are bracing for sustained long-term turbulence, as Bitcoin’s 90 and 180-day volatility have both risen from under 40% to 47%, while Ethereum’s has also lifted by about 10%, Dawson said.

‘Forced liquidations’

This downturn reflects a “confluence of macro, technical, and structural factors,” David Siemer, CEO of Wave Digital Assets, told DL News.

“We’re also seeing forced liquidations across leveraged positions as prices sliced through key supports, and that cascade is aggravated by relatively thin order books in digital asset markets.”

Siemer added that miners, whales, and short-term holders are taking advantage of recent highs to offload exposure, which compounds downward pressure.

AI bubble fears

Artificial intelligence has driven the meteoric surge across stock markets. The promise the AI revolution has trickled down into crypto, with venture capitalists pouring over $2 billion into crypto projects supposedly leveraging AI in some way.

Yet, so far the promises of the new technology have fallen flat and now many are raising the alarm that the AI bubble is about to burst.

Trade war

Another risk factor is the brewing trade war between Washington and Beijing after US President Donald Trump threatened to slam Chinese imports with a 100% tariff.

Those fears linger despite Trump offering a more conciliatory tone towards Beijing. On Friday, the US president said that the 100% duty was “not sustainable” in an interview with Fox News.

Trump now plans to meet Chinese President Xi Jinping in South Korea in two weeks to defuse tensions between Washington and Beijing.

“This is all just the ‘art of the deal and the‘TACO’ [Trump Always Chickens Out] trade remains alive and well,” David Brickell and Chris Mills, the analysts behind the London Crypto Club’s weekly Connecting the Dots newsletter, wrote on Sunday.

‘Cautiously optimistic’

Still, Siemer says he expects the downturn to eventually stabilise.

“I remain cautiously optimistic for recovery in Q4. If we get relief on trade policy, more regulatory clarity, and signs the Fed may pivot, those catalysts could help stabilise the market and restore confidence,” Siemer said.

Meanwhile, Robin Singh, CEO of crypto accounting platform Koinly, told DL News that Bitcoin’s current position as a “tug-of-war between short-term macro panic and long-term institutional accumulation.”

“Bitcoin needs to break above and sustainably hold above $110,000 to signal the worst of the downturn is over,” Singh said.

“It is in uncertain waters at the moment around $108,000, and a break below $105,000 could open the door to deeper corrections toward the $100,000 area.”

Crypto market movers

• Bitcoin is down 3% over the past 24 hours to trade at $107,787.
• Ethereum is down 4.3% over the past 24 hours, trading at $3,868.

What we’re reading

Lance Datskoluo is DL News’ Europe-based markets correspondent. Got a tip? Email lance@dlnews.com.