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Why is the crypto market dropping today? (March 27)

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Why is the crypto market dropping today? (March 27)

The crypto market continued its downtrend on Friday as hopes of peace in the U.S. and Iran faded following a breakdown in diplomatic talks.

Summary

  • Crypto market extended losses as fading U.S.–Iran peace hopes pushed Bitcoin below key support and triggered nearly $300 million in liquidations.
  • Escalating Middle East tensions and surging oil prices fueled inflation fears, raising expectations of tighter Federal Reserve policy.
  • Investors rotated into safe-haven assets like gold while equities and crypto-related stocks declined amid a broader risk-off sentiment.

Bitcoin (BTC), the world’s largest crypto asset, lost the $70,000 psychological support, falling to $68,560 at press time, down 2.8% over the day. Ethereum (ETH) fell 3.9% to $2,050 while other major cryptocurrencies such as BNB (BNB), XRP (XRP), Solana (SOL), and Dogecoin (DOGE) posted losses between 2% and 4% respectively.

Some of the top laggards of the day were Siren (SIREN), Rain (RAIN), and Provenance Blockchain (HASH), which recorded double-digit losses of 42%, 13%, and 10%. The total crypto market cap fell 1.6% over the day to $2.43 trillion.

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As crypto prices fell, the market suffered nearly $300 million in liquidations over the past 24 hours, with $254 million coming from long liquidations, reflecting the dominance of sellers. The Crypto Fear and Greed Index reading fell to 28, reflecting fear amidst investors who seem to be taking a risk-off stance amid market uncertainty.

The crypto market continued to remain bearish amid reports that the United States could be considering deploying 10,000 additional troops in the Middle East to bolster defenses against Iran. This followed after Tehran rejected the latest ceasefire proposal to end hostilities, as it called it an infringement on their sovereignty.

The ongoing geopolitical friction between the two nations has led to a blockade at the Strait of Hormuz, a key maritime choke point, leading to significant oil supply chain disruptions. This has resulted in soaring crude oil prices, sparking concerns of runaway inflation across the globe.

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Notably, WTI crude oil prices soared by over 31.6% the past month to over $93, while Brent oil surged 38% to over $107. Iranian officials have even threatened to push prices as high as $200. 

Expectations of sky-high inflation as a result of the energy war could force the U.S. Federal Reserve to take on stricter monetary policies as they pivot back to data-dependent decision-making on interest rate cuts.

While the Fed decided to keep interest rates unchanged at 3.50% to 3.75% during the March meeting, growing concerns of higher inflation could shift the odds in favor of a rate hike, a U-turn from the narrative observed before the Middle East war erupted.

Despite these separate reports suggesting that US President Donald Trump is prepared to extend the current pause on military action by another 10 days amid shaky peace negotiations, the market remains on edge.

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Capital rotation to traditional safe-haven assets

Crypto prices dropped as investors seem to be rotating their capital into gold, which is touted as the ultimate safe-haven asset. After falling below key levels on Thursday, gold prices rebounded back above $4,400, up nearly 2% today. In comparison, silver outperformed with gains of 3% during the same period.

Several Asian tech stocks, such as Japan’s Nikkei, South Korea’s Kospi, and Hong Kong’s Hang Seng, also slumped as investor appetite for risk assets was severely dampened. Cryptocurrencies share a high correlation with these traditional equity indices.

Outside of the crypto market, several top tech companies such as Nvidia, Microsoft, and Amazon saw their valuations trimmed. Crypto-related stocks such as Coinbase (COIN), Circle (CRCL), and Strategy (MSTR) also faced selling pressure.

However, the deepest impact was felt by bitcoin miners such as Marathon Digital and Riot Platforms, which have seen their margins squeezed by rising energy costs and the broader market retreat.

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Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

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Crypto World

Aave’s TVL Falls $8B After $293M Kelp DAO Hack

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Aave’s TVL Falls $8B After $293M Kelp DAO Hack

Total value locked on decentralized lending protocol Aave dropped by nearly $8 billion over the weekend after hackers behind the $293 million Kelp DAO exploit borrowed funds on Aave, leaving roughly $195 million in “bad debt” on the protocol and triggering withdrawals.

Data from DeFiLlama shows that Aave’s TVL fell from about $26.4 billion to $18.6 billion by Sunday, losing the top spot as the largest DeFi protocol. 

Aave v3’s lending pools for USDt (USDT) and USDC (USDC) are now at 100% utilization, meaning that more than $5.1 billion worth of stablecoins cannot be withdrawn until new liquidity arrives or borrows are repaid. 

$2,540 is available to be withdrawn from the $2.87 billion USDT pool on Aave v3 at the time of writing. Source: Aave

Aave’s TVL fall shows how rapidly risk from a single security incident can spread throughout the broader, interconnected DeFi lending market, potentially leading to a severe liquidity crisis.

The incident began on Saturday when hackers stole 116,500 Kelp DAO Restaked ETH (rsETH) tokens worth about $293 million from Kelp DAO’s LayerZero-powered bridge and used them as collateral on Aave v3 to borrow wrapped Ether (wETH).

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Crypto analytics platform Lookonchain said the move created about $195 million in “bad debt” on Aave, which contributed to the Aave (AAVE) token tanking nearly 20% from $112 on Saturday at 6:00 pm UTC to $89.5 about 25 hours later. 

Lookonchain noted that some of the largest crypto whales to withdraw funds from Aave were the MEXC crypto exchange and Abraxas Capital at $431 million and $392 million, respectively.

Source: Grvt

Several crypto networks and protocols tied to rsETH or the LayerZero bridge have paused use of the bridge until the problem is resolved, including DeFi platform Curve Finance, stablecoin issuer Ethena and BitGo’s Wrapped Bitcoin (WBTC).

Aave has frozen several rsETH, wETH markets

Shortly after the Kelp DAO exploit, Aave said it froze the rsETH markets on both Aave v3 and v4 to prevent any suspicious borrowing and later stated that rsETH on Ethereum mainnet remains fully backed by underlying assets.

WETH reserves also remain frozen on Ethereum, Arbitrum, Base, Mantle and Linea, Aave said.

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This incident marks the first significant stress test of Aave’s “Umbrella” security model, which was introduced in June 2025 to provide automated protection against protocol bad debt while enabling users to earn rewards.

Related: Aave DAO backs V4 mainnet plan in near-unanimous vote

Earlier this month, the Bank of Canada found that Aave avoided bad debt in its v3 market by using overcollateralization, automated liquidations and other strategies that shifted risk to borrowers.

In comments to Cointelegraph, Aave defended its liquidation-based model, framing it as a core safety mechanism that protects lenders while limiting downside for borrowers.

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It comes as Aave parted ways with its longest-standing DeFi risk service provider, Chaos Labs, on April 6, following disagreements over the direction of Aave v4 and budget constraints.

Magazine: Are DeFi devs liable for the illegal activity of others on their platforms?