Bitcoin is poised to experience its most significant monthly decline since the tumultuous corporate failures that shook the cryptocurrency sector in 2022. The leading cryptocurrency saw a drop of as much as 7.6%, falling to $80,553, before recovering some of its losses on Friday. Meanwhile, its closest competitor, Ether, fell by as much as 8.9%, dipping below $2,700, while numerous smaller cryptocurrencies faced similar downturns. According to CoinGecko, the overall market capitalization of digital assets has slipped below $3 trillion for the first time since April.
Bitcoin’s Decline Reflects Past Turmoil
In November, Bitcoin has lost roughly a quarter of its value, marking its steepest monthly decline since June 2022, as reported by Bloomberg data. The collapse of the TerraUSD stablecoin project initiated by Do Kwon in May 2022 led to a cascade of failures in the crypto industry, culminating in the downfall of Sam Bankman-Fried’s FTX exchange. Despite a supportive pro-crypto stance from the White House during Donald Trump’s presidency and increasing institutional interest, Bitcoin has plummeted over 30% since reaching an all-time high in early October.
Market Vulnerability and Forced Liquidations
The recent market downturn follows a significant wave of liquidations that took place on October 10, which resulted in the loss of $19 billion in leveraged token positions, effectively erasing approximately $1.5 trillion from the total value of all cryptocurrencies. Chris Newhouse, director of research at Ergonia, noted that a combination of forced liquidations and structural selling from exchange-traded funds (ETFs) has placed the market in a precarious situation, where any attempts at recovery are met with immediate selling pressure from various sources.
Intensified Selling Pressure
In the last 24 hours, the selling pressure has escalated, with an additional $2 billion in leveraged positions being liquidated, according to CoinGlass data. The broader economic environment has not provided much relief, as U.S. stock markets, which initially surged due to renewed interest in artificial intelligence following positive earnings from Nvidia Corp., lost momentum late Thursday due to concerns about inflated valuations and uncertainties regarding a potential interest rate cut by the Federal Reserve in December. Stock prices continued to fluctuate, causing unease among investors.
Pessimism Prevails in Market Sentiment
Market sentiment remains extremely negative, with indications of forced selling persisting, according to Pratik Kala, portfolio manager at the Australia-based hedge fund Apollo Crypto. A crypto wallet known as “Owen Gunden,” which has held Bitcoin since 2011, began selling off a total of $1.3 billion worth of Bitcoin in late October, divesting its final Bitcoin on Thursday, as reported by blockchain research firm Arkham Intelligence.
Long-Term Holders Selling Amid Market Decline
While Owen Gunden’s selling in itself may not be significant, it underscores a larger trend impacting Bitcoin this year: long-term holders are cashing out in substantial amounts. Vetle Lunde, head of research at K33, remarked that this trend, along with a gauge of crypto investor sentiment that measures volatility, momentum, and demand, has reached its lowest point since the 2022 crisis, indicating “extreme fear” among traders.
Institutional Hesitance and Market Reactions
Institutional investors appear hesitant to capitalize on the current market weakness. A cohort of 12 U.S.-listed Bitcoin ETFs experienced $903 million in net outflows on Thursday, marking their second-largest single-day redemption since their inception in January 2024. Additionally, open interest in perpetual futures has decreased by 35% from its peak of $94 billion in October. Analyst Tony Sycamore from IG Australia noted that the market might be testing the pain threshold of Strategy Inc., which is managed by Bitcoin advocate Michael Saylor. The company’s mNAV, which compares its enterprise value to its Bitcoin holdings, has plummeted to just over 1.2. Furthermore, JPMorgan Chase & Co. analysts have warned that Strategy may risk losing its position in key benchmarks like the MSCI USA and Nasdaq 100, with decisions anticipated by January 15.
Impact on Other Crypto Holders
Other entities attempting to mimic Saylor’s crypto accumulation strategy this year are also feeling the pressure, as companies like Sequans Communications, ETHZilla, and FG Nexus have started selling portions of their holdings to finance stock buybacks aimed at propping up their declining share prices. Bitcoin recorded its 11th consecutive lower low on Friday, marking the longest streak of declines since 2010, based on Bloomberg’s analysis.
Shift in Risk Appetite Among Crypto Investors
The ongoing pain felt by many in the crypto community has led to a notable reduction in risk-taking, with many investors opting to de-risk across major cryptocurrencies and altcoins in an effort to safeguard their positions as the year draws to a close, according to Bohan Jiang, a senior derivatives trader at FalconX.
