There’s no single catalyst behind the move. Instead, BTC was hit by a succession of negative developments while underlying demand and liquidity have weakened considerably.
Bitcoin has dumped by over $14,000 in ten days, falling from $81,000 after the US midterms to under $67,000 on Saturday morning. This massive collapse came on the heels of several developments that signaled weakening demand for risk-on assets, while some industry-specific factors exacerbated the move.
The cryptocurrency has erased almost all gains charted since the mid-August rally, and here are the reasons we would gather.
Politics, Wall Street, Crypto Liquidity Issue
The Democratic sweep started the rejection. BTC initially sold off after the election as Dems swept both chambers of Congress, falling toward the mid-$75,000s, before rebounding sharply and briefly to $81,000. This recovery disappeared almost immediately amid fresh uncertainty around regulation, fiscal policy, and tech spending, and the broader investment environment during the second half of Trump’s term.
Wall Street suffered a massive tech-led crash. This happened just a day after the rally to $81,000. The Nasdaq plunged by more than 5% within a day, while the S&P 500 suffered its worst session in months. Just for reference: the S&P 500 lost roughly $3 billion in a single session, which is more than the entire crypto market’s capitalization. BTC followed suit as equities tumbled, reinforcing its tendency to behave as a high-beta risk asset when investors rush out of technology and other speculative markets.
Spot BTC ETF demand disappeared. Institutional flows into the financial vehicles tracking bitcoin offered no support, with withdrawals nearing $1.3 billion within a single week. This became the worst performance since June, and the past week wasn’t any better. The removal of one of the strongest marginal sources of BTC demand coincided with increased selling pressure.
Crypto liquidity is drying up. CryptoQuant reported a sharp decline in underlying demand recently, with estimated 30-day spot BTC demand falling to around -280,000 BTC. Perpetual futures demand also turned negative. Meanwhile, Tether supply has contracted, with USDT’s market cap dropping by about $6.6 billion over 60 days. This suggests that some of the dollar liquidity that helped finance earlier rallies has left the market.
Inflation, Nvidia, Strategy, and More
Hotter CPI and Fed-hike fears. October consumer inflation was higher than expected, pushing markets to increase the probability of another Fed rate increase in December. Higher yields and a stronger dollar generally make non-yielding and speculative assets less attractive, and BTC broke through several technical support levels shortly after the reading went live.
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PPI increased the pressure. Producer-price data on Friday added another worrisome inflation signal. Even though the monthly number was less alarming, annual producer inflation remained elevated. This strengthened the broader concern that price pressures may prove more persistent than expected and keep the Fed restrictive for longer.
Jensen Huang and Nvidia crisis. The former largest company by market cap was already under pressure as reports emerged about CEO Jensen Huang’s personal relationships and questions surrounding corporate governance. The situation escalated further when he resigned, creating an unprecedented leadership shock for the company that has become the centerpiece of the AI trade. As we explained earlier today, this matters well beyond NVDA and spills into crypto and BTC.
Strategy’s MSCI removal. Another blow came from MSCI’s decision to exclude Strategy (and Metaplanet) from major global indexes, turning a long-discussed concern into an actual market event. Passive funds tracking the affected benchmarks will have to reduce or eliminate their MSTR positions, which could harm Strategy’s ability to raise money and buy more BTC. Moreover, it could lead to further bitcoin sales.
Leverage trades went wild. Once BTC started to tank hard, dipping below key technical levels, the cascade of sell-offs skyrocketed. CryptoPotato reported several times that 24-hour liquidations had risen past the $1 billion mark, with longs accounting for the lion’s share. This type of forced selling can accelerate declines rapidly: lower prices trigger liquidations, which create additional market selling, and the next layer of leveraged positions is then pushed toward its own liquidation level.
All of the above resulted in a near-perfect storm that led to a quick and painful deterioration for BTC and the broader crypto market. The question is, will the landscape improve somehow soon, or will Peter Schiff finally be right?
