Just in one day, bitcoin's year-to-date gains were nearly halved, dropping 20% from its previous all-time high. Some views suggest that as selling pressure weakens liquidity, bitcoin may further decline.
The cryptocurrency market has experienced a huge earthquake, shaking the confidence of investors.
On Monday, cryptocurrencies continued to be heavily sold off. Bitcoin fell below $500,000 within the day, a sharp drop of 16%, while Ethereum fell by up to 23%, marking the largest drop since 2021.
Earlier this year, due to the approval of the SEC for the listing of two major cryptocurrency spot ETFs and the support of cryptocurrency by US presidential candidate Trump, Bitcoin showed signs of decoupling from stock market fluctuations, and investors became increasingly optimistic about the prospect of Bitcoin.
According to data compiled by Bloomberg, two weeks ago, the 30-day correlation coefficient between Bitcoin and the MSCI World Stock Index was -0.2, which has rarely turned negative in the past four years, indicating that the Bitcoin market and global stock markets have started to turn negatively related.
But this 'optimistic narrative' was brutally hit by yesterday's plunge. As recession concerns intensified, the sell-off of global stock markets intensified, and the correlation between Bitcoin and global stock markets once again increased. Geopolitical tensions also added fuel to investor's anxiety.
In just one day, Bitcoin has almost given back half of its annual gains, dropping by 20% from its previous all-time high.
Rich Rosenblum, CEO and Co-founder of digital asset investment firm GSR, commented:
"For every 1% drop in the market, investors' confidence will take a hit. For cryptocurrencies, as Bitcoin is a Veblen commodity (a commodity whose demand is proportional to its price), the resilience of confidence in it exceeds that of any other market in the world."
Weak employment data has added insult to injury to the cryptocurrency market.
Last week's nonfarm payroll data was below expectations, with the unemployment rate soaring to a new three-year high, triggering the "Sam's rule" recession indicator, which caused a heavy blow to risk assets, including cryptocurrencies. The Bitcoin spot ETF suffered the largest outflow of funds in nearly three months that day.
Virginie O'Shea, founder and CEO of Firebrand Research, said holding Bitcoin as a strategic reserve is a "crazy idea":
"If you want asset reserves, you need to look for relatively stable things in an unstable market, and cryptocurrencies are just the opposite."
Will the steep decline continue?
Some believe that Bitcoin could further decline in the future.
Dessislava Aubert, a senior analyst at data platform Kaiko, said:
"We may see further declines because market makers may reduce risk exposure to avoid toxic cash flows. We have seen similar declines in the top ten alternative currencies."
Aubert said that since early August, Bitcoin has fallen by more than 40% in the 1% market depth (the average trading volume within the range of a 1% change in the current price within 24 hours) of major cryptocurrency exchanges such as Binance, Bybit, Bitfinex and Coinbase, indicating that selling behavior is weakening market liquidity.
However, some industry insiders remain bullish on the cryptocurrency market.
Zaheer Ebtikar, the founder of the cryptocurrency fund Split Capital, believes:
"This is a transition, just like in TradFi (traditional finance), (Bitcoin's positioning) is transitioning from short-term derivatives to long-term holdings."