In the last month, Bitcoin has tumbled from an all-time high just above $126,000 in early October to $103,000 per token as of this writing.
But intraday yesterday, Bitcoin cracked the $100,000 mark to the downside, enough to push it into bear market territory (down 20% or more from its highs).
It’s since snapped back over that round-number, six-figure level, but the fact that Bitcoin is even toying with a bear market obviously has crypto investors on edge.
As you can imagine, the chart doesn’t paint a very pretty picture.
Setting aside the price action for a moment, it’s worth noting that trading volumes reached their highest levels since the April “Liberation Day” selloff that similarly hammered the broader market (major indices themselves toyed with bear market territory at the time).
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Reporting from Yahoo Finance noted that U.S. Bitcoin ETFs recorded half a billion dollars of selling on Tuesday, while older Bitcoin wallets (long-term holders) are “selling millions.” (Perhaps as much as $45 billion has been sold by long-term holders over the last month, per Bloomberg.)
Of course, context matters. Even after the selloff, Bitcoin is still up 11% for the year and 38% from the April bottom.
And crypto wasn’t selling off in a vacuum.
We’ve seen across-the-board selling in the most speculative areas of the market lately. The recently relaunched Roundhill Meme Stock ETF (MEME) has fallen more than 27% from its highs on October 13.
High-PE retail favorite Palantir (PLTR) is down 10% in just the last two days.
Pre-revenue nuclear company (and top-performing large-cap stock) Oklo (OKLO) is off 12% in the last week.
And D-Wave Quantum (QBTS), itself a speculative play on the burgeoning quantum computing space, is down 31% since October 15.
Returning to the matter of the Bitcoin bear market, could Wednesday’s rebound turn out to be little more than a “dead cat bounce” that results in a resumption of the downtrend?
It’s certainly possible, and a key area to watch is the $100,000 level (although some technical analysts are pointing to $94,000 as the lower bound of support, as that was the launching pad for the runup that began in early May).
That said, there’s nothing “wrong” with Bitcoin as an asset class (or at least nothing any more “wrong” with it than at any other time throughout its history), so I would expect Bitcoin’s performance in the coming weeks and months to reflect the market’s more broadly.
If speculative pre-revenue companies and hype-driven names start to rally once again, I’d expect Bitcoin to follow suit (if not lead the way).
But if those stocks continue to deteriorate, then it’s likely that Bitcoin grinds lower as well.
By my estimation, Bitcoin is responding to the market’s appetite for risky assets in general, and the pivot to a more “risk off” mode due to a combination of concerns about overvaluations and a slowdown in rate cuts after the latest Fed meeting has become a drag on all those speculative names listed above and many, many more.
Ultimately, that leaves Bitcoin in a familiar position: as a volatile play on market sentiment more generally.
So, for the time being, the prudent thing to do is to treat it as such. If you’re worried about the market in general, pare back your Bitcoin exposure as well. And if you’re bullish that the last few weeks have just let a little air out of the speculative balloon ahead of the next leg higher, then there’s no reason to cast aside your BTC despite the outsized move lower.
But, do yourself a favor and have some mental stops in mind in case the market as a whole starts heading south.
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