Since reaching its all-time high of $126,000 last autumn, Bitcoin has fallen to just above $60,000 amid a persistent wave of selling. In just eight months, its market value has evaporated by over $1.2 trillion, erasing all the gains accumulated during Trump's second term.
Last Friday, Bitcoin hit its lowest price since just before the 2024 presidential election that secured Trump's re-election.
This stands in stark contrast to the market sentiment at the start of the new administration, when expectations for crypto-friendly policies fueled a surge to record highs. Just one month after the election, Bitcoin first broke the $100,000 barrier.
However, the market mood has decisively reversed. Bitcoin is down nearly 30% this year and over 6% since Trump's inauguration; in contrast, the S&P 500 is up nearly 10% year-to-date and has gained 30% since the start of Trump's second term.
The prolonged slump in the eight months following its peak has led some investors to exit entirely, while others are reassessing the role of cryptocurrency in their portfolios. Data from market intelligence firm Farside Investors shows that BlackRock's flagship Bitcoin ETF experienced net outflows on every trading day from May 15th to June 3rd.
Bitcoin saw a brief rebound in late February following the initial outbreak of US-Iran tensions, with analysts debating whether it could reclaim its status as "digital gold" and a hedge against uncertainty. However, those gains were quickly surrendered.
Meanwhile, the US stock market rebounded strongly from its initial war-related dip, setting new record highs. Traditional gold is flat for the year but has risen 60% since Trump took office.
Entrepreneur and Shark Tank investor Mark Cuban stated in a May podcast: "I think Bitcoin has lost its original value proposition." Cuban revealed he had sold the vast majority of his Bitcoin holdings, adding, "It didn't perform as the hedge I expected, which is very disappointing."
Since the flash crash on October 10th last year, which triggered billions in forced liquidations, Bitcoin has failed to stabilize. Its performance has been consistently outpaced by assets like stocks and gold, with multiple factors continuing to weigh on its price.
The broader crypto sector mirrors this downturn, with exchange Coinbase seeing its stock price fall approximately 30% this year.
Analysts note that in recent weeks, unprecedented enthusiasm for the 人工智能 sector has diverted capital previously earmarked for crypto. The buzz surrounding potential mega-listings like SpaceX—which also has significant 人工智能 interests—is gradually replacing the speculative fervor that once surrounded cryptocurrencies.
Jonathan Bill, CEO of Farside Investors, said, "A significant amount of speculative capital is selling Bitcoin to chase 人工智能-related assets."
Another headwind stems from uncertainty around inflation data and Federal Reserve interest rate policy. Hotter-than-expected inflation prints and strong jobs reports have led traders and economists to widely adjust their expectations, anticipating the Fed will maintain higher rates for longer.
Gerry O'Shaughnessy, Head of Global Market Insights at Hashdex Asset Management, stated that expectations for high rates and a tighter monetary environment are applying sustained pressure on cryptocurrencies.
"Cryptocurrencies typically perform better in an environment of abundant market liquidity and low interest rates. The current market is filled with uncertainty about the direction of monetary policy."
Ryan Rasmussen, Research Lead at Bitwise Asset Management, explained that during downturns, leveraged long Bitcoin traders face automatic forced liquidations by exchanges once their losses hit a threshold, and these large-scale liquidations can amplify the downward move.
Data compiled by Bitwise from CoinGlass shows that in a five-day period earlier this month, nearly $2.5 billion worth of Bitcoin long contracts were forcibly closed.
The actions of MicroStrategy (MSTR), a core corporate holder of Bitcoin, also influence market moves. The company's strategy of accumulating large amounts of Bitcoin allows regular investors to gain indirect exposure by buying its stock. Last week, MicroStrategy disclosed selling 32 Bitcoins—its first sale since 2022—directly contributing to a weekly plunge of over 17% for Bitcoin, its worst weekly performance since November 2022.
However, the company reversed course on Monday, purchasing 1,550 Bitcoins, which helped trigger a rebound across crypto markets.
Outlook for the Crypto Sector
Despite Bitcoin's persistent weakness, some alternative cryptocurrencies have bucked the trend. The HYPE token, issued on the Hyperliquid exchange, has surged 150% this year.
A key potential catalyst that could alter the crypto landscape in the near term is the CLARITY Act. This legislation, currently being debated in both houses of the US Congress, would establish a clear regulatory framework for the industry, promoting compliance and formalization.
The CLARITY Act would also create corresponding regulatory rules for various digital assets, including stablecoins and Ethereum.
Hashdex's O'Shaughnessy believes that if the bill passes, it could serve as a major catalyst for higher cryptocurrency valuations.
"Many investors who have been bearish, thinking the industry was heading for oblivion, would immediately change their view, realizing that the US finally having a legal framework in place would attract a flood of investment capital into the sector."
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