For months, crypto enthusiasts and day traders poured billions into leveraged investments, buoyed by hopes that President Donald Trump’s administration would dismantle regulations and usher in a golden era for the digital asset industry. However, as Trump’s tenure progresses, these traders are finding themselves at the mercy of a volatile market, with many facing significant losses amid a broad Wall Street selloff.
The latest downturn particularly affects leveraged exchange-traded funds (ETFs) tied to virtual currencies. On Monday, funds that bet on digital assets, like the Bitcoin-linked ETFs associated with Strategy—formerly known as MicroStrategy—suffered sharp declines, dropping more than 30% in a single day. Other high-risk funds, including those tracking Robinhood Markets and leveraged Bitcoin and Ether funds, also took substantial hits, with some seeing losses of up to 40%.
These funds represent a core segment of the crypto-trading landscape, which had been fueled by optimistic speculation following Trump’s return to office. The president had shown early enthusiasm for the crypto sector, even suggesting the creation of a national reserve of digital tokens and launching his own memecoin. This had sent Bitcoin and other cryptocurrencies soaring in the lead-up to his re-election.
However, industry insiders are increasingly disillusioned by the Trump administration’s handling of crypto-related policies. The proposed digital asset reserve—originally seen as a game-changer—was met with disappointment when it was revealed that lesser-known tokens like XRP, SOL, and ADA would be included. Additionally, a crypto summit held last Friday, which many had hoped would provide substantial policy guidance, was criticized as more of a public relations stunt than a meaningful step forward. As Blockworks analysts Donovan Choy and Macauley Peterson noted, the summit left industry players “still very much in wait-and-see mode.”
The broader market environment is also not helping matters. With global economic uncertainty exacerbated by Trump’s erratic trade policies and concerns over a potential recession, investors are fleeing riskier assets. The S&P 500 has erased all gains since Trump’s re-election, and speculative assets, once part of the “Trump trade,” are taking even deeper hits.
Economists are sounding alarm bells about an impending recession, with JPMorgan Chase and Goldman Sachs models indicating rising probabilities of a downturn. As noted by Todd Sohn, senior ETF strategist at Strategas, in such an environment, investors are shying away from high-beta assets, like leveraged crypto ETFs. “In a recessionary climate, these funds are not the kind of assets investors want to hold,” he said.
Even Trump has acknowledged the market turbulence, framing it as part of a necessary “transition” period while his policies take root. Michael O’Rourke, chief market strategist at JonesTrading, suggested that the unwinding of speculative bets was inevitable. “These leveraged wagers were essentially gambling on the most volatile corners of the market,” he explained. “The way they surged should have been a warning that they could collapse just as quickly.”
Some funds have already seen severe losses. The two ETFs linked to MicroStrategy, for instance, are down approximately 45% this year. Similarly, the GraniteShares 2x Long COIN Daily ETF, which tracks Coinbase Global, has fallen over 55% since the end of 2024. A Bitcoin-focused fund (BITX) has also dropped 35%, outpacing the 16% fall in Bitcoin itself.
As Bitcoin hit a four-month low of $76,606 in Singapore on Tuesday, sentiment around digital currencies remains fragile. Even the once-popular iShares Bitcoin Trust ETF (IBIT), which saw record inflows at the beginning of December, has reversed course, experiencing substantial outflows in February and March.
Elsewhere, high-flying tech ETFs—once beloved by retail investors, particularly those connected to Elon Musk—are also in freefall. The Direxion Daily TSLA Bull 2X Shares (TSLL), designed to double Tesla’s volatility, has plunged over 70% this year. Similarly, funds tied to Palantir Technologies saw losses upwards of 20% on Monday alone.
One of the key funds tied to both crypto and Musk’s influence is Cathie Wood’s ARK Innovation ETF (ARKK), which has lost 16% year-to-date. Investors have withdrawn around $240 million from the fund, adding to the nearly $4 billion in outflows it has experienced over the last two years. The fund’s holdings include high-profile companies such as Tesla, Coinbase, Robinhood, and Palantir—many of which are now suffering significant losses.
Despite the ongoing challenges, there is still belief in the long-term potential of the crypto market. Roxanna Islam, head of sector research at TMX VettaFi, noted, “There are plenty of long-term growth drivers for crypto, especially with the pro-crypto administration. But the reality is that crypto remains a high-risk asset, driven more by sentiment than by rationality. When broader market concerns mount, it’s difficult to maintain faith in the sector.”
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