Why is the crypto market down today? (Jan. 26)
The cryptocurrency market extended its slide on Monday, with total market capitalization slipping back under the $3 trillion threshold as selling pressure intensified across major coins. A combination of renewed geopolitical friction between the United States and Canada, trade war fears, and the looming threat of another U.S. government shutdown pushed investors toward traditional safe havens like gold and away from risk assets such as Bitcoin and altcoins.
Data shows that the global crypto market cap dropped nearly 3% on the day, marking the first time this year it has fallen below $3 trillion. The pullback reflects a sharp deterioration in sentiment as traders reassess risk in light of escalating political and macroeconomic uncertainty.
Sentiment gauges confirmed the growing anxiety. The Crypto Fear and Greed Index slid another five points to 20 on Monday, locking in six consecutive days in the “extreme fear” zone. This persistent caution has weighed heavily on trading activity, speculative positioning, and overall liquidity in the digital asset space.
Bitcoin (BTC), the largest cryptocurrency by market cap, shed about 3% intraday, hitting a low of $86,126 before clawing back some losses and stabilizing around $87,700 at the time of writing. Ethereum (ETH), the dominant altcoin, was also down roughly 3%, trading near $2,850. Other large-cap tokens, including BNB (BNB), XRP (XRP), Solana (SOL), and Dogecoin (DOGE), remained in negative territory with daily losses ranging from 1% to 4%.
Derivatives markets amplified the move. Data from CoinGlass indicated that the latest drop unleashed roughly $605 million in liquidations of long (bullish) positions over the past 24 hours. Bitcoin futures led the wave with about $179.8 million forcibly closed, followed by Ether-based futures with approximately $203.6 million in long liquidations. This cascade of forced selling contributed to intraday volatility and accelerated price declines.
A key driver of the sell-off was mounting concern over a potential trade confrontation between the U.S. and Canada. Market mood soured after President Donald Trump threatened to impose a 100% tariff on all Canadian imports. The warning was framed as a response to Canada’s attempt to finalize a free trade agreement with China, following Prime Minister Mark Carney’s high-profile visit to Beijing. For investors who still remember the turbulence of 2025’s trade tensions, the rhetoric sounded uncomfortably familiar.
Memories of the U.S.–China trade war, particularly the October escalation that culminated in the Oct. 10 crypto crash, remain fresh. Back then, Bitcoin suffered a steep drawdown as global risk assets reeled from tariff threats and supply-chain uncertainty. The new prospect of a U.S.–Canada trade conflict raises the risk of a similar risk-off episode, prompting traders to reduce exposure to volatile assets like cryptocurrencies.
On top of trade worries, the possibility of another U.S. government shutdown is casting a long shadow over markets. Political tensions have intensified after Senate Democrats signaled they may block a $1.2 trillion funding bill if it includes continued financing for the Department of Homeland Security without significant reforms. The dispute is tied to ongoing unrest in Minnesota following a fatal shooting involving federal agents, further complicating negotiations in Washington.
This standoff leaves markets bracing for a potential funding lapse as the Jan. 31 deadline approaches. Prediction markets have rapidly adjusted to the new reality: odds of a government shutdown, which stood around 10% on Saturday, spiked to over 76% by Monday on Kalshi, while Polymarket pricing implied roughly an 80% chance of a lapse in government operations. Such elevated probabilities reflect genuine concern that political gridlock could again spill over into financial markets.
The last time the U.S. government shut down, from early October to Nov. 12, Bitcoin endured a painful correction. The leading cryptocurrency fell nearly 21% from its all-time high to roughly $100,000. That slump was compounded by the ongoing political stalemate in Washington and Trump’s tariff threats on China, which together triggered the now-notorious Oct. 10 crypto market crash. For many traders, the current setup feels like a replay: intensifying trade rhetoric, partisan brinkmanship over the budget, and a jittery macro environment.
Meanwhile, gold has emerged as a clear winner in this risk-off rotation. Since the October crash, the precious metal has significantly outperformed Bitcoin as investors gravitate toward established safe-haven assets. This trend has continued into the new year. Gold recently broke decisively above the $5,000 level, notching gains of more than 17% so far in 2026. In stark contrast, Bitcoin remains about 30.4% below its record high of $126,080 set in October of last year, underscoring the shift in investor preference away from high-volatility digital assets.
The divergence between gold and Bitcoin highlights a broader rethinking of the “digital gold” narrative. While BTC is often marketed as an inflation hedge and macro hedge, periods of acute political stress and policy uncertainty have shown that many institutional and retail participants still default to traditional stores of value. For now, gold’s deep liquidity, historical track record, and perception as a crisis asset appear to be outweighing the appeal of crypto’s upside potential.
Beyond immediate price swings, current events are reshaping how traders manage risk in the crypto market. Heightened geopolitical uncertainty and the threat of a shutdown are prompting market participants to de-leverage, cut speculative positions, and move part of their portfolios into cash or safer assets. This shift is especially evident in derivatives, where high leverage had magnified both the preceding rally and the latest downturn. As liquidations flush out overextended longs, some analysts argue the market could be moving toward a healthier, more sustainable positioning base.
However, the near-term outlook remains fragile. Traders are now closely tracking any statements from Washington and Ottawa that might escalate or cool trade tensions. Similarly, each headline about the budget negotiations and Department of Homeland Security funding is scrutinized for clues on whether a shutdown can be averted. Even if fundamentals in the crypto ecosystem—such as network activity, protocol development, and institutional adoption—remain relatively stable, macro headlines are currently the dominant driver of short-term price action.
Longer term, episodes like this can have mixed effects on the digital asset space. On one hand, repeated macro shocks and policy fights may deter new entrants who are wary of volatility. On the other, they can strengthen the case for decentralized assets among believers who see political dysfunction as a core argument for non-sovereign money. Historically, severe drawdowns have often been followed by periods of consolidation and rebuilding, during which stronger projects and more resilient market structures emerge.
In practical terms, many market participants are adopting a more defensive stance. Portfolio managers are rebalancing away from highly speculative altcoins into more established assets such as Bitcoin, Ethereum, and, in some cases, stablecoins. On-chain data watchers are monitoring exchange inflows and outflows to gauge whether long-term holders are capitulating or continuing to accumulate. So far, there are signs of both: some profit-taking and risk reduction, but also opportunistic buying on dips from investors with longer time horizons.
Retail traders, who tend to be more sensitive to headlines and price swings, face a particularly challenging environment. Rapid moves triggered by liquidations and algorithmic trading can make it difficult to execute strategies or maintain conviction. Education about risk management—such as avoiding excessive leverage, diversifying holdings, and setting clear timeframes—becomes especially important when macro volatility intersects with crypto’s inherent price swings.
For institutional players, the current turmoil serves as a stress test of trading infrastructure, risk models, and compliance frameworks. Funds with clear mandates and robust hedging strategies may see this as a chance to accumulate quality assets at a discount, while those relying heavily on directional bets and leverage could be forced to reduce exposure or even exit positions entirely. The divergence between strategies may lead to higher dispersion in returns across crypto-focused funds in the coming months.
Looking ahead, the path of least resistance for crypto prices will likely depend on three key variables: the trajectory of U.S.–Canada trade relations, the outcome of the U.S. budget negotiations and shutdown risk, and the persistence of demand for safe havens like gold. A de-escalation of tariff threats or a last-minute funding deal in Washington could ease pressure on risk assets and allow for a relief rally. Conversely, a full-blown trade dispute combined with an actual shutdown would likely keep crypto markets under strain, at least in the short run.
Despite the current downturn, the structural themes that have driven crypto adoption over the past several years—tokenization, decentralized finance, digital payments, and regulatory maturation—remain in play. The challenge for investors is to navigate short-term macro turbulence without losing sight of long-term trends, while acknowledging that political risk has become a key variable in crypto pricing.
This analysis is for educational and informational purposes only and should not be interpreted as investment advice. Traders and investors should conduct their own research and consider their risk tolerance before making any financial decisions in the cryptocurrency market.