Bitcoin bulls have it all — Wall Street support, political tailwinds, institutional cash. Everything, that is, except a rally.
After topping US$126,000 last month, bitcoin has fallen sharply, briefly wiping out this year’s gains before stabilizing yesterday morning in Asia. The sharp retreat from record highs comes in a year that was supposed to cement bitcoin’s legitimacy.
Wall Street has shown up, exchange-traded funds (ETFs) are bringing crypto into mainstream portfolios and US President Donald Trump’s administration has fully embraced crypto.
Photo: Reuters
Yet the market has retreated — fast, hard and with no clear trigger. Bitcoin’s total market value has plunged by about US$600 billion from last month’s high, data compiled by Bloomberg showed.
Across trading desks and social media, anxiety is creeping in. Traders are cycling through old charts, dusting off familiar theories, scouring for buyers. With no traditional Wall Street playbook for how bitcoin should behave — no stable correlation, no proven risk framework — some default to the model they know best: the four-year halving cycle.
That is the event that sees bitcoin’s supply growth cut in half, by design, about every four years. Historically, it has spurred speculative booms followed by painful busts, often with a lag as miners — operators of powerful computers supporting the network — tend to unload their holdings just as prices sour.
This cycle, the halving took place in April last year. Then came the price peak last month. That roughly fits the old rhythm, but with deep-pocketed buyers shaping the market, it is no longer clear the script still applies.
“The sentiment in retail crypto is so bad that there could still be some downside in the market,” said Bitwise Asset Management Inc chief investment officer Matthew Hougan, who believes prices will go up next year. “People are afraid that the four-year cycle might repeat, and they don’t want to live through another 50 percent pullback. People are front-running that by stepping out of the market.”
Some of the damage reflects hangover and exhaustion. Retail cash got torched chasing crypto-treasury stocks at the highs. Then, early last month, a surprise escalation in trade tensions triggered liquidations — just as leverage boomed.
The result: a market long on expectations, short on conviction and too fragile to catch the knife once sentiment flipped.
All this, just as the pro-crypto story looked strongest. ETFs hauled in billions by midyear, recasting bitcoin as a macro hedge. Trump’s pro-crypto policies promised even more upside.
However, flows stalled. Some longtime holders cashed out. Poster firms such as Strategy Inc trade close to the value of their bitcoin holdings — a sign conviction is no longer commanding a premium.
“At this point, bitcoin trades much more like a macro asset embedded in institutional portfolios, responding to liquidity, policy and dollar dynamics more than to mechanically predictable supply shocks,” said Jake Kennis, an analyst at crypto data firm Nansen Pte Ltd.
Despite all the talk of institutionalization, the market still trades on vibes. Right now, the vibes are bad.
With gold and stocks near all-time highs, bitcoin is the “tip of the risk-assets iceberg and melting,” Bloomberg Intelligence senior commodity strategist Mike McGlone said. “I expect bitcoin and most cryptos to keep falling.”
For Derek Lim, head of research at crypto market maker Caladan Group, the bitcoin bull runs of 2017 and 2021 were not simply the result of the halving events that preceded them, but of “a more powerful and fundamental driver: global liquidity,” he said.
That might return now that the US government shutdown has come to an end, he added.
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