Bitcoin has fallen below the $90,000 mark, giving up all the gains it had in made over the past year.
The drop has again reflected the highly volatile and risk-sensitive nature of the cryptocurrency market, and sparked another period of unease in the otherwise growing sector.
Why has Bitcoin tanked?
Bitcoin has practically flattened and given up all gains from a year ago – the same time it and other cryptocurrencies began its ascent, in the wake of US President Donald Trump's election victory and his vociferous support for the market.
It reached a new peak on October 6 when it hit $126,251, but since then Bitcoin has failed to gain further momentum.
It entered $90,000 territory at about 6.20am UAE time on Tuesday, and slipped to below that level at 7.35am, according to data from CoinMarketCap. It was at $89,396.60 at 11am.
A variety of factors, including economic uncertainty, concerns over overvaluations among tech stocks and anxiety over whether or not the US Federal Reserve will cut interest rates again has affected the market.
One of the key drivers of the decline is also the significant capital outflow from Bitcoin-based exchange traded funds (ETFs), according to Oanda market analyst Krzysztof Kaminski.
A Bitcoin futures ETF issues publicly traded securities that offer exposure to the price movements of Bitcoin futures contracts, the US Commodity Futures Trading Commission has said.
The latest decline may force investors in Bitcoin ETFs and other crypto-related securities to rethink their positions, analyst reports indicate.
Analysts have also been saying that another tech bubble could burst, arguing that shares – especially tech stocks influenced by the artificial intelligence boom – are priced too high.
“Would improved appetite save Bitcoin? I don’t know. It rarely moves on anything tangible and it annoys me,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. “What’s clear is that momentum remains Bitcoin’s bigger trend – pointing at deeper losses.”
The last time Bitcoin was at $100,000 was on November 13, when it fell to the $99,000 level – ending a six-month stretch in which it enjoyed six-figure values. Ethereum, the second-biggest crypto, has lost almost 40 per cent from a peak in August.
Is there fear in the market?
“Extremely”, according to the crypto Fear and Greed Index, which measures the prevailing sentiment in the sector.
The index ranges from 0 to 100, where a lower value indicates extreme fear and a higher value indicates extreme greed, in a bid to help investors understand the emotional state of the market, which can influence buying and selling behaviours.
As of Tuesday, the index has a score of 11, indicating “extreme fear”, close to the previous worst reading of 15 on March 11. That's also a long way off the 12-month high of 88 – extreme greed – posted on November 21 last year.
Where is it heading?
It is not yet clear how low Bitcoin will fall before recovering.
To put it into perspective, since 2017, Bitcoin has recorded declines of at least 25 per cent on more than 10 occasions, six drops of more than 50 per cent and three retreats of more than 75 per cent, analysis from industry tracker the Kobeissi Letter has shown.
“How deep? My Fibonacci retracement on the 2023–2025 rally suggests it could sink to around $82,000 to $83,000 without breaking the past two years’ bullish trend,” said Ms Ozkardeskaya.
The current environment for Bitcoin remains highly volatile and uncertain, added Mr Kaminski. It remains to be seen “whether this is merely a short-term correction or the beginning of a deeper bearish trend”.
