Fears of AI Bubble Trigger Widespread Crypto Sell-Off

The cryptocurrency market suffered a sharp downturn, with its total capitalization falling to $3.15 trillion amid a rout in global markets. The sell-off was largely driven by growing fears of an artificial intelligence (AI) bubble, a concern that intensified after Alphabet CEO Sundar Pichai acknowledged potential “irrationality” in the current AI boom and warned that no company would be immune if it burst.

Amid the broader turmoil, Bitcoin (BTC) plunged to $89,226, erasing all gains made since the beginning of 2025. The rapid decline pushed its market capitalization down to $1.8 trillion and triggered a massive wave of liquidations. Over a 24-hour period, more than $560 million in leveraged Bitcoin positions were wiped out. Across the entire crypto market, the sell-off liquidated over $1 billion in positions, affecting approximately 185,000 traders.

Analyst Points to Structural Flaws Behind the Crash

According to economist Tracy Shuchart of Ninjatrader, the dramatic price drop was inevitable. She argued that the macro narrative that had propped up Bitcoin at its peak of $126,000 had “collapsed in just a few weeks,” leaving the asset without a compelling story to sustain its price.

Shuchart identified two critical factors that created sustained selling pressure. First, she noted that the recently launched spot Bitcoin exchange-traded funds (ETFs), while initially successful in attracting institutional capital, also created a new source of institutional-scale sell liquidity. She attributes large ETF outflows to professional portfolio managers rebalancing their positions now that the asset’s fundamental thesis has weakened.

Second, Shuchart pointed to significant profit-taking from long-term holders who had purchased Bitcoin between $40,000 and $80,000. These investors offloaded 815,000 BTC in just 30 days. “They aren’t selling because they think Bitcoin is worthless,” Shuchart explained. “They’re selling because they see volatility ahead and they’re sitting on 50 to 150 percent profits.”

Excess Leverage and the Search for a True Bottom

The decline was accelerated when Bitcoin’s price broke below the key $100,000 psychological support level, triggering a cascade of liquidations in the derivatives market. While this event caused open interest to fall from $94 billion to $68 billion, Shuchart believes there is still excess leverage in the system.

She concluded that Bitcoin will likely continue its downward trend until this remaining leverage is fully cleared from the market. The key question, she suggests, is not why the crash happened, but what price level will finally attract genuine buyers instead of leveraged speculators. That new market floor is still being discovered.

Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial advice, investment advice, or any other sort of advice. You should not treat any of the website’s content as such. Always conduct your own research and consult with a professional financial advisor before making any investment decisions.

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