jakiro
Li Dan, Wall Street Insights
Bitcoin is experiencing a menacing decline, even with support from Wall Street, policy support and an influx of institutional funds.
As of Monday, the world’s largest cryptocurrency has wiped out almost all of its gains this year. After hitting a record high of over $126,000 on October 6, its market value has evaporated by about $600 billion in six weeks.For a market that was supposed to be stabilizing on the strength of its mainstreaming process, the speed and intensity of the sell-off was beyond expectations.
Amid this huge earthquake, the “big investor” holding Bitcoin – Strategy Inc., the world’s largest Bitcoin treasury company formerly known as MicroStrategy, bucked the trend and increased its positions.The company disclosed on Monday that it bought $835.6 million worth of Bitcoin in the seven days ending last Sunday, the largest weekly purchase since July last year.This increased its total Bitcoin holdings to 649,870, with a total value of approximately US$61.7 billion.
At least for now, Strategy’s “dip hunting” has not boosted market sentiment.CoinMarketCap data shows that at noon on U.S. stocks on Monday 17th Eastern Time, Bitcoin, which had fallen below $93,000 at the beginning of the Asian market, fell below $92,000, hitting a new low in the past seven months. It fell more than $4,000, or more than 4%, from the daily high in European stocks. It dropped more than $30,000 from the intraday high set on October 6, and the cumulative plunge was about 27%.
What is even more noteworthy is that the company’s market value has dropped to US$59 billion, lower than the value of its Bitcoin holdings. This rare discount indicates that the premium mechanism supporting its financing model has failed.
This decline not only tests the confidence of retail investors, but also Wall Street’s determination of Bitcoin as a long-term allocation asset.With the combination of ETF fund outflows, leverage unwinding, and falling macro risk appetite, the market is experiencing a severe torture about “when will Bitcoin be able to fulfill its promise?”
The selling wave is coming: market confidence is rapidly collapsing
Bitcoin’s sharp decline comes against an otherwise bullish backdrop.Wall Street is already in place, exchange-traded funds (ETFs) are bringing cryptocurrencies into mainstream investment portfolios, and the Trump administration is fully embracing the crypto industry.But the market retreated quickly, violently and with no clear trigger.
Data compiled by Bloomberg show that as of Monday, Bitcoin’s total market value has shrunk by about $600 billion from its peak in October this year.Anxiety is spreading on trading desks and on social media.Traders dug out old charts, revisited familiar theories, and looked for buyers.
Some of the losses reflect market fatigue and overreaction.Retail investors suffered heavy losses chasing crypto concept stocks at high points.An unexpected escalation in trade tensions triggered a wave of liquidations in early October, just as leverage was at its peak.The result is: a market with overly high expectations, low confidence, and too fragile a market that is unable to catch the knife of decline after a sentiment reversal.
Jake Kennis, an analyst at crypto data platform Nansen, said: “Bitcoin is trading more like a macro asset embedded in institutional portfolios at this point, reacting far more to liquidity, policy and dollar dynamics than expected from mechanical supply shocks.”
Despite all the talk about institutionalization, the market still relies on sentiment trading.And right now, the mood is terrible.Risk appetite has reversed, with altcoins falling sharply this year.Nor has Trump’s positive effect insulated cryptocurrencies from macro drag or competition from new speculative darlings like artificial intelligence, stablecoins and prediction markets.
Wall Street’s confusion: Does the four-year cycle still apply?
In the absence of a traditional Wall Street playbook for how Bitcoin should behave — no stable correlations, no proven risk framework — some have fallen back on the model they are most familiar with: the four-year halving cycle.
This event refers to the fact that Bitcoin’s supply growth is designed to be halved every four years.Historically, it has spurred speculative booms followed by painful crashes, often with some lag, because miners — the operators who run the powerful computers that power the network — tend to sell off their holdings when prices fall.
In this cycle, the halving will occur in April 2024, followed by the price peaking in October this year.This is roughly in line with the old rhythm.But as deep-pocketed buyers shape the market, it’s no longer clear that this playbook still holds true.
Matthew Hougan, chief investment officer at Bitwise Asset Management, said he believes prices will rise next year.He said: “The market sentiment among cryptocurrency retail investors is so bad that there may be some downside in the market. People are worried that the four-year cycle may repeat itself, and they don’t want to experience another 50% correction. People are rushing out of the market by exiting the market.”
Eric Balchunas, an ETF analyst at Bloomberg Intelligence, believes that this may be the time when traders’ nervousness about history repeating itself “makes the four-year cycle happen.”On the other hand, “the typical rhythm may be slightly disrupted, or permanently disrupted.”
Derek Lim, head of research at cryptocurrency market maker Caladan, said that the Bitcoin bull markets in 2017 and 2021 were not just the result of previous halving events, but the product of “a more powerful and fundamental driver: global liquidity.”He added that liquidity could return as the U.S. government shutdown ends.
ETF investors face a test: the average cost line is in danger
Bitcoin’s decline has wiped out nearly all of this year’s gains, and things could get worse if it falls further.That’s because the token is in danger territory, approaching the point where the average retail investor will face losses, a dynamic that could turn ETF flows from what was once a steady tailwind into a fundamental downside driver.
Bitcoin fell below US$93,000 at the beginning of the Asian market on Monday, and then hovered around US$94,000. By the end of the US stock market, the decline expanded again.Bitcoin is well below the $100,000 mark that seemed to have provided some round-number support, and has also fallen sharply below its 365-day moving average, leaving the average investor who bought at any time over the past year in the red.
The next round mark is $90,000, which may also hit a key pain point for ETF buyers.Estimates earlier this month put the mixed buy price of all historical inflows into the U.S. Spot Bitcoin ETF at $89,600.This level may have moved – especially given the recent rapid outflows, with approximately $1.5 billion flowing out of crypto ETFs last week – but a drop into this price range is likely to exacerbate negative sentiment among retail investors towards Bitcoin and other virtual currencies.
Investors have withdrawn $2.56 billion from cryptocurrency exchange-traded products in the past month, after adding $58.3 billion over the past year, according to data compiled by Bloomberg.Total crypto ETP assets are $184.5 billion.
Strategy doubles down on bets: Financing mechanism faces test
Strategy, founded by Michael Saylor, doubled down on the digital asset treasury model it pioneered by hunting the bottom of last week’s crypto market rout.Strategy disclosed that it purchased $835.6 million in Bitcoin in the seven days ended last Sunday, which was the company’s largest single purchase of the original cryptocurrency since July last year.
This brings its total holdings to 649,870 tokens, worth approximately $61.7 billion, according to a filing with the U.S. Securities and Exchange Commission (SEC) on Monday.The company appears to have financed most of its purchases with proceeds from a euro-denominated preferred stock offering it completed last week.
But Strategy’s business model is facing tests.The company relies on issuing shares and convertible bonds at a premium to buy Bitcoin, a financing mechanism that becomes ineffective when the market capitalization falls below the value of its holdings.Strategy’s mNAV — a key valuation metric that compares a company’s market capitalization to the value of its Bitcoin holdings — has plummeted from more than 2.5x to just 1.2x.The premium that once made Strategy a high-beta proxy for Bitcoin is now too thin to attract the same momentum chasers, weakening the cyclical mechanics that once drove it higher.
On Friday, as the price of Bitcoin fell below $95,000 and hit a six-month low, Strategy’s stock price fell 32% in the past month.The company’s market capitalization fell to $59 billion, while its Bitcoin holdings were worth $62.3 billion, which meant its mNAV fell to about 0.95x. This was the first time in the company’s history that its market capitalization was lower than its Bitcoin holdings.
Since the company announced it would begin buying Bitcoin in August 2020, the stock price has risen more than 1,500%.The S&P 500 has more than doubled over the same period.The stock, which has fallen about 57% since reaching an all-time high of $473.83 on Nov. 20, 2024, was essentially flat on Monday.
In an interview with the media, Strategy co-founder and executive chairman Saylor refuted speculation about selling caused by on-chain data, saying: “We are buying Bitcoin and will announce the next batch of purchases on Monday morning. I think people will be pleasantly surprised. In fact, we have been accelerating our purchases.”
Saylor initially financed the company’s Bitcoin purchases by selling common stock.The company later began issuing convertible debt and eventually preferred stock as investor concerns about dilution caused common stock premiums to shrink.It recently entered the European market to raise funds.Strategy completed a 620 million euro ($716.8 million) sale of euro-denominated perpetual preferred shares last Thursday.
Mike McGlone, senior commodities strategist at Bloomberg Intelligence, said that with gold and stocks approaching all-time highs, Bitcoin is “the top of the risk asset iceberg and is melting.””I expect Bitcoin and most cryptocurrencies to continue falling.”
