Bitcoin's price has experienced a dramatic drop, falling below its previous low and reaching $98,944, sparking widespread concern among cryptocurrency enthusiasts. The month of October started optimistically, yet the ongoing tension between China and the U.S. resulted in significant market declines. This article aims to unravel the current state of cryptocurrencies and explore the underlying causes of these developments.
Reasons for the Cryptocurrency Downturn
As October draws to a close, it was announced that the U.S. and China entered into a year-long tariff agreement on rare earth elements, indicating a longer-term solution to existing tensions. Despite this, cryptocurrencies were unable to return to their pre-October levels. The acceleration of sales due to sequential liquidations in October differs from the current situation, where approximately 400,000 Bitcoins, valued at around $45 billion, have been sold by long-term investors over the past month. Such substantial market exits have caused billion-dollar liquidations within 24 hours.
Among the sold Bitcoins, 319,000 were held for 6-12 months, indicating a preference for selling at current price levels. The steady ETF exits further burden the spot market, with Bitcoin ETF exits exceeding $566 million on November 4. Since October 29, ETF exits have reached nearly $2 billion, surpassing the previous record of $62 billion cumulative inflows.
Ethereum ETFs have similarly seen consistent exits since October 29. This divergence from October’s sharp decline, stemming from heightened chaos and risk aversion, highlights more fundamental issues contributing to the continued downturn.
In the wake of October’s decline, whale purchases slowed while steady sales increased, prompting some professional investors to continue selling in November for justifiable reasons.
Drivers for a Potential Cryptocurrency Rise
In contrast, the belief in a four-year cycle may mislead investors who are not considering the unique period we are currently experiencing, where earlier cycle models may not apply. In December, the Fed plans to initiate monetary expansion and potentially halt asset sales, marking the end of a prolonged economic downturn.
- •The expected resolution of tariff discussions could ease tensions if the U.S. Supreme Court does not make controversial decisions regarding Trump’s trade policies.
- •Large financial institutions, such as Vanguard, plan to offer cryptocurrency services next year, indicating a growing embrace of crypto ETFs.
- •Legislation like GENIUS, aimed at increasing regulatory clarity, continues to drive financial giants like JPMorgan into legal engagement with cryptocurrencies, seeking a stake in the burgeoning market.
- •Extensive leverage has been wiped out, suggesting a ripe environment for healthier upward momentum in futures markets.
- •Sustained inflows from ETFs and crypto reserve companies are vital for recovery, with potential signals indicating an imminent market correction.
While there are valid reasons for both declines and rises, the future remains uncertain. Unlike any period in history, Bitcoin is part of a financial shift towards crypto-based solutions. The integration of cryptocurrencies by institutional investors, acceptance by banks, and regulatory validations introduce complexities that could yield unforeseen surprises for those relying solely on historical data.