Bitcoin's recent modest rebound is raising concerns among analysts, who warn that the cryptocurrency's structural weaknesses may lead to further declines. Despite a milder crypto winter compared to previous ones, investors are pulling out of Bitcoin exchange-traded funds, and technical indicators have weakened, suggesting the worst may be yet to come.
Last week's selloff was partly due to Strategy Inc., led by Michael Saylor, selling a small portion of its Bitcoin holdings, which contradicted its previous stance of never selling. Although the company bought 1,550 Bitcoin for about $101 million, significantly more than the $2.5 million it sold, market confidence remains shaky.
Technical indicators have shown signs of weakness, with Bitcoin slipping below its 200-week moving average, a critical metric for traders. This breach suggests that rallies may be sold off rather than pursued, increasing market caution.
“The break below the 200-week moving average provides important confirmation that markets may have entered a bear phase.”
Paul Howard, Senior Director at Wincent
Investors have been withdrawing funds from US-listed spot Bitcoin ETFs, with about $5.5 billion pulled over 13 consecutive days of net outflows. This trend reflects a broader shift in interest-rate expectations, as higher borrowing costs divert capital from speculative assets like cryptocurrency.
Bitcoin's correlation with US stocks has weakened as funds move into artificial intelligence and tech companies. The current correction is milder than past crypto winters, with Bitcoin falling roughly 50% from its peak compared to about 80% in previous bear markets.
“This is a massive reversal in expectations.”
Rajiv Sawhney, Head of International Portfolio Management at Wave Digital Assets
Background
The shift in interest-rate expectations, driven by unresolved geopolitical tensions and strong US jobs data, has led markets to anticipate potential rate increases by the US Federal Reserve. This shift is a significant reversal in expectations, impacting speculative investments like Bitcoin.
Looking ahead, the crypto market faces potential systemic risks that could affect equity markets and spread to cryptocurrencies. Analysts remain cautious, with the possibility of further downturns looming large.
