Losses of $131 Billion Cause a Quake in the Cryptocurrency Market

SadaNews - The alternative currency market witnessed a dramatic collapse last week, with no signs yet of a near return for speculators.

The collapse affected not only Bitcoin but swept through entire systems of digital tokens where speculation has increased, drawing bettors due to promises of immense wealth based on widely circulated memes, flashy names promoting them, and blind faith in market momentum.

Trump-linked cryptocurrencies decline

Bitcoin dropped by 13% due to renewed trade tensions between the United States and China, but the damage to smaller currencies was greater, with some plummeting by up to 80% before recovering slightly.

The meme coin associated with President Donald Trump, promoted earlier this year, lost 37% of its value on Friday, according to data from CoinMarketCap. The WLFI coin from World Liberty Financial, also linked to the Trump family, experienced a similar decline.

The collapse reveals the fragility of alternative currencies

Of the $380 billion that vanished from the markets, around $131 billion came from alternative currencies, according to estimates by 10x Research, in a sector characterized by weak liquidity, speculative narratives, and exaggerated enthusiasm from day traders.

This collapse increases doubts about the future of the alternative currency ecosystem, as traders and market makers see the structural support for these tokens eroding with declining interest and rising aversion to risk. Notably, this unprecedented wave in terms of speed and scale may represent a final break from a period of insane highs when unknown currencies surged by 1000% without justification.

As researchers at Arca noted: "The average observer of global markets may not have noticed what happened, but if you are an experienced trader in the crypto world, you’ve witnessed the end of the world."

Alternative currencies encompass a wide range of digital assets outside of Bitcoin and Ether, including meme coins linked to trending topics on social media, such as Shiba Inu dogs, the cartoon frog "Pepe", and even the real hippopotamus "Moe Din".

This category was the most affected on Friday and Saturday morning, as exits began from it with a weakened appetite for risk in the markets, but the deeper collapse of alternative currencies resulted from their structural fragility. Many of them trade at limited volumes, lack actual buying depth, and rely on a few traders to stabilize prices. When selling pressures intensify, these traders quickly withdraw, leaving the tokens exposed to rapid fluctuations. In the absence of strong fundamentals or ongoing demand, the pricing mechanism collapses quickly.

Bitcoin's declining dominance may herald a wave of market collapses

Despite their limited liquidity compared to Bitcoin and Ether, these coins have grown to capture an increasing market share. Bitcoin's share of the total market capitalization of cryptocurrencies dropped from about 65% in July to 58.5% currently, according to CoinMarketCap data.

This shift is significant. Historically, Bitcoin's dominance has collapsed before each major downturn in the cryptocurrency market, declining from 70% in 2019 to 38% at the end of 2022, just before the last broad wave of collapse, then rising again as capital flowed into safer digital assets.

Today, many market participants expect this pattern to repeat, with a prolonged period of stability for less entrenched digital assets. This is not only because many traders suffered harsh losses during the past week, but also because few of those coins were profitable before the latest collapse wave.

As trader Morten Kristensen, founder of AirdropAlert.com, described, "The problem with alternative currencies is that they can actually achieve massive highs, but they can also plummet by 50% in a day or 90% in a week. I'm not willing to risk my portfolio at this late stage in the cycle, especially with increasing signs that the end is near."

The alternative currency market is heading for contraction

The meme coin linked to Trump has lost about 78% of its value since its launch in January, according to CoinMarketCap data, noting that most of this decline occurred before the recent collapse. Meanwhile, the XRP coin, the fifth largest digital currency in the world, is currently trading at the level where it started at the beginning of the year.

Conversely, rare exceptions have emerged, such as the BNB coin tied to the Binance platform, which rose by approximately 81% since the beginning of the year.

According to analyst John Todaro from Needham & Co, "These assets have been exposed to a high level of risk as we saw over the weekend, but they have underperformed compared to major cryptocurrencies, stocks, and gold. In short, the risk has been much greater than the return."

Amid the immense losses suffered by day traders, Evgeny Gaevoy, CEO of Wintermute, frankly stated, "The alternative currency market is heading for contraction."