Bitcoin has experienced a significant decline in value over the past few weeks, with predictions suggesting that it will continue to trend lower as the year comes to a close. Currently trading around $89,800, the cryptocurrency has plummeted more than 20% in the past month and is approximately 30% below its record high of just over $126,000, attained in early October.
This downturn can be attributed to a series of factors, including the liquidation of highly leveraged positions within the crypto market. Traders are increasingly moving away from riskier assets like Bitcoin and are opting for more stable investments, such as gold. The shift is motivated by mixed economic data and growing concerns over the valuation of stocks in the artificial intelligence sector.
In addition to external market pressures, some long-term Bitcoin holders are also liquidating portions of their portfolios. This trend is influenced by a notable yet controversial belief among investors that the cryptocurrency’s “halving” schedule—a process that occurs every four years on Bitcoin’s network—will influence its future price movements. During a “halving,” the rewards for mining new Bitcoin are cut in half, which is intended to manage supply and increase scarcity, potentially enhancing the asset’s long-term value.
As Bitcoin struggles, those who entered the market when prices were above the $100,000 threshold may sell out of fear, exacerbating the downward momentum. Analyst Ed Engel from Compass Point remarked that bear markets typically conclude following a transfer of assets to more committed holders. He noted that the exit of significant buyers, particularly those who invested above the $100,000 mark, could signal that Bitcoin is nearing a bottom.
Engel pointed out that many investors who became involved with Bitcoin through exchange-traded funds (ETFs), which received approval in the U.S. last year, might be particularly responsible for the current selling pressure. He observed that Bitcoin’s price has recently rebounded from the $82,000 level—referred to as the “True Market Mean”—which aligns closely with the average cost basis of ETF holders at about $83,000.
Looking ahead, Engel is monitoring signs that might indicate Bitcoin has hit its low for this cycle. Such signs include increased accumulation by long-term holders and signs of negative perpetual funding rates, which would suggest that leveraged positions have been eliminated from the market. While he does not anticipate Bitcoin to perform as poorly as in previous bear markets, he emphasizes the need for more robust accumulation from long-term investors and a more aggressive stance from futures traders before becoming optimistic about Bitcoin’s trajectory.
