Bitcoin erased its gains made during the summer, giving up the profits that accompanied the wave of enthusiasm on Wall Street and the rise in institutional demand.
The world's largest cryptocurrency fell by as much as 7.4% to $96,794 in New York trading on Tuesday, its first dip below $100,000 since June, but later rebounded above that level again.
This represents a drop of over 20% from its record high a month ago, mirroring the performance of stocks entering a bear market. Ether has also fallen by 15%, and many other altcoins have declined by similar percentages, with some experiencing losses exceeding 50% since the beginning of the year due to low liquidity and trading difficulties.
Impact of major liquidations in October
The turning point came in October when a severe sell-off wiped out billions of dollars in long positions. Since then, traders have remained on the sidelines, with open interest in Bitcoin futures contracts still far below pre-crash levels. Despite improved funding costs, few are willing to return to the market.
As a result, Bitcoin has risen less than 10% since the beginning of the year, lagging behind the performance of stocks, and has once again failed to play a hedging role in investment portfolios.
Chris Newhouse, director of research at Ergonia, a decentralized finance firm, said that Bitcoin's fall to its lowest level since June reflects a market structure still suffering from the psychological fatigue resulting from the massive liquidation wave in October, which fundamentally changed the way participants react to the prevailing downtrend.
Decline in liquidation volumes and extensive hedging.
The current wave has been described as a low-conviction sell-off, with total liquidations amounting to only about $1 billion on Tuesday, according to Coinglass data, far below the record high of about $19 billion liquidated on October 10.
Meanwhile, options traders have built up large hedging positions against further declines, with sell contracts expiring in late November at an execution price of $80,000 seeing the highest demand, according to Coinbase's Derbet exchange data.
Bitcoin's decline coincides with a drop in technology stocks.
Bitcoin's decline this week mirrors the reversal in high-performing technology stocks, with AI companies like Palantir and Nvidia falling amid renewed doubts about inflated market valuations.
Bitcoin is often seen as an indicator of speculative momentum, and it is now moving back in line with stock market sentiment.
The currency recovered some of its losses in early Asian trading on Wednesday, rising 1.6% to trade at $101,130 at 8:27 a.m. Singapore time, while other currencies also pared some of their losses.
Pressure from index funds and declining demand
Cryptocurrencies face additional headwinds, including outflows from exchange-traded funds (ETFs) and concerns about potential sell-offs by digital asset management firms.
Both Bitcoin and Ether spot funds saw outflows last month, indicating waning investment demand after a strong rally earlier in the year. While the month is still young, the trend so far appears negative, suggesting a slowdown in the sector's momentum.
Newhouse said: Although the overall long-term trend remains clearly bearish, the severity of the October sell-off prevented traders from holding long-term short positions betting on a continued decline, leading to a dominance of short-term momentum-based trades, rather than focusing on trend-following trades.
