Crypto in Crisis: Rate Hikes, Regulation, and the Road to 2028
Key Take Aways
Bitcoin has fallen more than 25% in the past month and nearly 50% from its all-time highs, contributing to a broader 22% crypto market decline and roughly $750 billion in erased value.
Aggressive interest rate hikes in Japan disrupted carry trades and forced leveraged traders to unwind positions, accelerating margin liquidations and intensifying selling pressure.
Regulatory tightening is increasing uncertainty, particularly after the U.S. passed the Genius Act requiring stablecoins to be fully backed by liquid assets.
The United States holds over 200,000 BTC, which is about 5% of the total crypto market, and the 2028 presidential election raises concerns that a future administration could liquidate reserves, potentially triggering another sharp downturn.
The start of 2026 has been an extremely turbulent time for crypto markets. Bitcoin is down over 25 percent over the past month and is nearly 50 percent below all-time highs. It is not just Bitcoin that is struggling, as the entire crypto market has shed 22 percent in the past month. This sell-off wiped out 750 billion dollars.
What triggered the sell-off?
The downturn in the crypto market is being driven by a few key factors. First, Japan has been aggressively hiking interest rates under its new administration. This has forced crypto traders to liquidate large positions, thus increasing selling pressure. This is due to the prominence of “carry trading” in crypto. Carry trading is when investors borrow money in a currency whose interest rates are extremely low in order to buy risk-on assets like stocks and crypto, hoping to make amplified profits. For many years, Japan kept its interest rates extremely low. This made it a hotspot for “carry” traders.
Second, investors holding large margin positions were forced to liquidate their positions during the drop. This amplified the downward selling pressure.
Lastly, there has been uncertainty in the crypto regulation space. Prior to this, crypto was known for being sparsely regulated compared to other assets. Now, governments are beginning to crack down and regulate more heavily. For example, the US passed the Genuis Act in 2025, which regulates stablecoins to be fully backed one-to-one by US dollars or other liquid assets. This sparks investor uncertainty and thus weakens buying.
Where now?
Historically, large Bitcoin pullbacks are not unheard of. In 2022, Bitcoin prices fell by over 75 percent, and in 2021, prices fell by over 50 percent. After both of these retracements, the price rallied by over 100 percent. Is this sell-off just another minor price correction, or is it something entirely different?
On the technical side, Bitcoin continues to hold a bearish trend line on the 4-hour timeframe. For me to be bullish on Bitcoin and crypto overall, I want to see Bitcoin break through the 4-hour trendline and show strong momentum to the upside.
Fundamentally, interest rate hikes in Japan and stronger regulation of previously unregulated crypto markets make the future of crypto a bit fuzzy. I would look for crypto to partially regain its losses in 2026, but not to the tune of 100 percent gains, unlike previous retracements
2028 Uncertainty
Looking forward to the future, 2028 will be a very troubling year for crypto. It all comes down to the US’s large crypto reserve. The US is the world’s largest holder of crypto, as it holds over 200,000 Bitcoins. This stash is currently worth over 13 billion US dollars. This represents a 5 percent stake in the entire crypto market.
Why 2028? This is the year of the next US Presidential Election. While the Trump Administration has made it a goal of infusing crypto into the US government through its “US Bitcoin Reserve”, there is uncertainty whether the next administration will continue to hold this strategic position. If the next President decides to offload the US’s crypto reserves, it would send global crypto markets into a freefall.