Small-cap cryptos plunge to 2020 depths, as institutional money flows out of BTC ETFs

The world’s largest cryptocurrency has tumbled below key psychological levels, erasing most of its 2025 gains. At the same time, small-cap coins are getting hit the hardest.

Bitcoin dropped under $94,000 on Friday after previously falling below the $100,000 mark, eliminating nearly all the progress it had made since January. The sharp decline has sent shockwaves through the cryptocurrency world, where momentum often drives trading decisions.

Market analysts say the downturn happened in two phases. First came a broad selloff triggered by larger economic factors, followed by automatic selling as traders were forced to close losing positions.

October 10 crash triggers massive liquidation cascade

The problems started on October 10, according to Alessio Quaglini, who runs digital asset company Hex Trust. Rising tensions between the United States and China caused investors to dump risky investments across the board. What followed was even worse – a wave of forced selling that destroyed billions of dollars in borrowed trading positions.

“This is a liquidity reset, not a loss of belief in the asset,” Quaglini said.

The damage spread beyond Bitcoin. Ether, the second-biggest cryptocurrency, has dropped more than 35% from its August peak of $4,954. The entire crypto market has been under pressure since the initial crash.

Even though U.S.-China relations have improved somewhat, Bitcoin continues to struggle. Peter Chung from Presto Research pointed to thin trading volumes since the October 10 crash and fears that Bitcoin’s typical four-year boom-and-bust cycle might be ending. He noted that even small trades can now cause big price swings.

Economic headwinds are making things worse. Expectations for a Federal Reserve interest rate cut in December are fading. A recent government shutdown that delayed economic data releases has also hurt investor confidence.

Tim Sun, a researcher at digital asset firm HashKey, said the tighter financial conditions have particularly hurt Bitcoin exchange-traded funds. These investment products pulled in over $100 billion shortly after getting approved, but institutional money has slowed significantly as financial conditions tightened. Sun said that money is now flowing out instead of in.

Experts warn correction may continue despite long-term optimism

Many experts don’t expect the selloff to end soon. Quaglini warned that the correction might continue, saying if stock markets fall further, Bitcoin could easily drop to the low $70,000s or even below that level temporarily.

Jeff Mei from cryptocurrency exchange BTSE agreed that more declines could be coming. He pointed out that Bitcoin is still acting like a risky investment, and with artificial intelligence company valuations under question and rate cuts uncertain, further price drops could make sense.

However, market watchers stress that this downturn looks different from previous crypto crashes. “This is not 2022 – there’s no credit contagion, no cascading insolvencies, no systemic failure,” Quaglini said. He still expects Bitcoin to reach new highs within 12 to 18 months once conditions improve.

The smallest and riskiest cryptocurrencies are getting hit the hardest. The MarketVector Digital Assets 100 Small-Cap Index, which tracks 50 smaller digital assets, fell to its lowest point since 2020 on Sunday.

These smaller coins used to outperform during good times as traders chased high-risk, high-reward bets. But that changed last year when the U.S. approved Bitcoin and Ether investment funds, which became the main focus for institutional investors.

Over five years, the small-cap index has lost nearly 8% while larger cryptocurrencies have gained about 380%.

Pratik Kala, a portfolio manager at Apollo Crypto hedge fund in Australia, said retail traders are learning from past cycles. “A rising tide doesn’t lift all boats – it only lifts the quality ones,” he said.

The broader crypto market is still recovering from the October 10 meltdown, which caused about $19 billion in forced selling and erased more than $1 trillion in total market value. Since then, appetite for risk has collapsed, and traders continue avoiding the most speculative investments.

For advice, Chung suggested retail investors avoid trying to time short-term moves and instead buy small amounts over time. Sun recommended long-term buyers wait for broader economic signals rather than technical chart patterns, saying Bitcoin’s recovery depends on global money conditions becoming looser.

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