Crypto assets are raging, and short-term transactions are fading out of “Trump's popularity”?

The Zhitong Finance App learned that over the past few months, investors who love cryptocurrencies have invested billions of dollars in leveraging strategies, hoping Trump can unregulate this emerging industry in preparation for a new world of digital prosperity. But now, short-term traders betting on cryptocurrencies are bearing the brunt of the massive Wall Street sell-off — due to concerns over Trump's volatile policy agenda. Digital assets have performed particularly poorly, in part due to disappointment that Trump's industry policies have fallen short of expectations.

Exchange traded funds (ETFs) are the best example, which seek to provide substantial returns on various virtual currencies or crypto-related topics. The biggest drop on Monday was the two ETFs that provide leveraged bets for Strategy (MSTR.US). Both ETFs fell by more than 30% on the same day. Strategy is a Bitcoin holding company, formerly MicroStrategy.

Another fund that doubled in size from Robinhood Markets (HOOD.US) dropped 40%. Robinhood Markets is a favorite brokerage firm for cryptocurrency traders. In the larger sell-off in the digital token market, leveraged Bitcoin funds lost around 20%, and Ethereum-focused funds lost 26%.

The assets and companies that support leveraged funds can be seen as the key to forming a crypto trading complex that has grown rapidly since Trump returned to the White House. The US president has embraced the digital asset industry, promised to build a strategic reserve full of tokens, and previously stimulated speculative spirit by launching his own meme coin. Bitcoin and other cryptocurrencies soared after the election.

However, now industry insiders are increasingly concerned about the Trump administration's actions on cryptocurrencies so far. The recent news about strategic crypto reserves is disheartening, as Trump said it would include lesser-known tokens XRP, SOL, and ADA. Then, last Friday's White House crypto summit “turned into a textbook-style PR campaign — focusing on the surface, light on the substance.” “For the most part, we're still on the sidelines,” the Blockworks analyst wrote.

Cryptocurrency continued to decline on Tuesday. Bitcoin fell back below $78,000 per coin and fell 0.88% during the day. Ethereum fell more than 5.00% during the day and is now reported at 1,768 US dollars/coin, a new low since November 2023.

As investors are alarmed by Trump's intermittent trade threats and Elon Musk's moves to cut the federal workforce, cryptocurrency ETFs have also suffered huge losses, and they are pricing more and more signs of a recession. The S&P 500 has erased all gains since the election, while speculative stocks involved in the “Trump deal” are falling even faster.

More and more economists are sounding the alarm for a potential recession. At the beginning of this month, a J.P. Morgan Chase model showed that the possibility of a US recession suggested by the market had climbed to 31%, while a similar model from Goldman Sachs also showed that the risk of a recession was gradually rising. Todd Sohn, senior ETF strategist at Strategas, said that in such an environment, “you wouldn't want to invest too much in these high-risk stocks.”

Trump himself said that the current market turmoil may be part of a necessary “transition” period as his new policies will work in the economy. Michael O'Rourke, chief market strategist at JonesTrading, said that in this context, it is understandable that speculative stocks are “heavily liquidated.” He said, “These are all leveraged gambles; in fact, gambling on the most speculative aspect of the stock market. The way they have risen sharply should have indicated that they could collapse just as quickly, or even faster.”

The two strategy-based leveraged funds have declined by about 45% so far this year. The GraniteShares 2x Long COIN Daily ETF (CONL.US) aims to provide cryptocurrency exchange Coinbase Global to double long trades, and has declined by more than 55% since the end of 2024. Bitcoin itself fell 16%.

The data shows that at the beginning of December, the $50 billion iShares Bitcoin Trust ETF (IBIT.US) recorded the largest inflow volume in a single week, with inflows of more than 2.6 billion US dollars at that time. On the other hand, February was the fund's first and largest monthly capital flow, with an outflow of nearly 800 million US dollars. So far, another $130 million has been taken away in March.

Also affected are high-tech ETFs and funds linked to Musk — since the tech billionaire is close to the White House, these funds were seen as “irrigation deals” among retail investors. With Tesla's stock price falling sharply, the Tesla Double Long Fund (TSLL.US) has fallen by more than 70% this year due to Tesla's famous volatility. Palantir Technologies Inc. (PLTR.US)'s fund, which doubled in size, lost around 20% on Monday alone.

Perhaps no other fund has been hit as much as the ARK Innovation ETF (ARKK) owned by “Sister Wood” Kathy Wood, covering the concept of cryptocurrencies and the Musk complex. The fund has lost 16% so far this year. Investors have withdrawn about US$240 million from the fund, after a total outflow of nearly US$4 billion for two consecutive years. ARKK's main holdings include Musk's Tesla, as well as shares in Coinbase, Robinhood, and Palantir — all stocks that have recently been sold off.

Roxanna Islam, head of industry and industry research at TMX Vettafi, said: “Cryptocurrency has many long-term growth drivers, particularly in terms of governments that support cryptocurrencies. The problem, though, is that cryptocurrencies are still a high-risk asset, and their pricing is largely based on emotions rather than rationality. It's hard to have confidence in cryptocurrencies when there are so many concerns in the wider market.”