After a brief period of optimism in the cryptocurrency markets, selling pressure has returned. Bitcoin, following yesterday’s sharp recovery, fell again today, weakening investors’ hopes of a “bottom formation.”
Bitcoin, the world’s largest cryptocurrency, fell by as much as 3.5% to $66,511. Just a day earlier, it had approached the $70,000 level for the first time since February 16th, in line with a recovery in risk appetite. However, this rise was not sustainable.
Spot Bitcoin ETFs traded in the US recorded net inflows of over $500 million on Wednesday. However, the fact that there has been a total net outflow of approximately $1.7 billion since the beginning of the year indicates a continued cautious stance among institutional investors.
Adam McCarthy, a research analyst at the crypto analytics company Kaiko, stated in his assessment of the current situation that such rallies are common in bear markets and periods of low liquidity. McCarthy noted that the rise was not based on a strong foundation and therefore the pullback was not surprising.
Market dynamics show that crypto assets maintain a high correlation with technology stocks. In particular, the weakening seen in Nvidia shares following question marks surrounding AI investments, and the pressures on the AI-related sector, are limiting appetite for risky assets.
Matt Hougan, investment director at Bitwise Asset Management, stated that crypto winters end with indifference, not excitement. According to Hougan, while sharp one-day increases are noteworthy, Bitcoin shouldn’t be expected to jump directly to $100,000. He indicated that the process will take time and be volatile, suggesting that even lower lows are possible.
Earlier this month, Bitcoin erased all the gains it had made following the prospect of Donald Trump’s re-election in November 2024. Expectations of a crypto-friendly second term for Trump had propelled Bitcoin to a record high of over $126,000 last October. However, the subsequent sharp sell-off led to a deep correction in the digital asset market.
Mining companies are also affected by the turmoil in the sector. American Bitcoin Corp., backed by the Trump family, suffered a heavy blow with the sharp decline following its strong IPO on Nasdaq. The company reported a loss of $59 million in the fourth quarter; the sharp drop in its share price wiped out approximately 90 percent of its market value.
CoinShares digital asset analyst Matthew Kimmell stated that the sharp drop in Bitcoin from its peak could magnify losses in companies’ asset holding strategies. According to Kimmell, the decrease in the market value of Bitcoin held on the balance sheet can lead investors to price in balance sheet risk before it is reflected in operational results.
*This is not investment advice.
