Bitcoin (BTC) is in trouble. From the historical highs reached on October 6, which touched $126,200, to the lows set this past Friday, the queen cryptocurrency has lost more than half of its value. To find a similar level you have to go back to summer of 2024months before Donald Trump won the presidential elections and started a new bull market in the cryptocurrency market. And the last few weeks have been a kind of perfect storm of negative factors for the largest crypto asset on the market. The poor reception to the nomination of Kevin Warsh as the new president of the Federal Reserve (Fed), the stellar rally in precious metals and, above all, the panic that has been unleashed around artificial intelligence (AI) have been the factors that have weighed the most on bitcoin. «Bitcoin’s decline is interesting, as bitcoin and the Nasdaq tend to move together, and their positive correlation is 40%. This is a moderate positive correlation; however, the correlation between bitcoin and Bloomberg’s basket of AI stocks is even closer, at 62%,» explains Kathleen Brooks, director of research at XTB. According to this expert, these percentages suggest that When bitcoin moves, it has an impact on AI-related stocks.
The reason, Brooks points out, is none other than the liquidity. In recent years, liquidity has flowed simultaneously into digital assets and technology stocks, especially large-cap and AI-linked ones. This means that both asset classes share «a close financial bond»which is affected by changes in liquidity patterns. «So, when bitcoin gains strength, this translates to AI stocks, and when the price of bitcoin falls, that downward pressure can weigh on technology stocks,» Brooks adds. In this sense, Brooks also highlights that the rapid growth of flows to the exchange traded funds (ETF) has likely contributed to this link. Despite recent weeks of larger net outflows, these listed products have captured around $54 billion in net inflows, although BlackRock’s IBIT has managed to record even more positive flows (around $61.6 billion). However, this, Brooks says, also tells us something about the investment cycle: when bitcoin and AI stocks rise in unison, it is a sign that the innovation cycle «is in full swing,» as investors focus on how «AI will shape the future of computing and how we do business,» while bitcoin «represents the future of decentralized finance and global payments.» However, recent nervousness in the markets makes it clear that the innovation cycle «has come to an end» and The question now is «whether investors have lost all faith or will they look to the future again?».
HAVE YOU REACHED BOTTOM OR NOT YET?
In this regard, the opinion of experts such as those at Jefferies is that the latest wave of sales in the market still shows few signs of having put bitcoin in a rebound situation, even at levels that have historically attracted investors looking to buy on dips. In a recent report, the US investment bank describes the latest cuts as a liquidity-driven correction, rather than a collapse in blockchain activity. According to Jefferies, the continued use of networks and selective accumulation of bitcoin by companies is sufficient evidence that the underlying infrastructure of the sector remains intact. At the same time, these analysts indicate that small and medium-sized holders appear to be holding their positions instead of coming out aggressively. This, added to others catalysts futuressuch as greater institutional adoption or new favorable laws in the United States, could help prices rebound in the long term. For its part, Deutsche Bank points out that these falls are a clear example of the gradual erosion of trust at both the institutional and regulatory levels. According to the German bank, there are three forces at play that are affecting the asset above the rest: sustained outflows of institutional capital, a breakdown in traditional bitcoin market relationships and a loss of regulatory momentum that had previously supported liquidity and compression of volatility. However, these experts believe that the current phase marks a restart rather than a collapsewhich suggests that bitcoin «still has room to mature». In fact, the German bank asks do not overinterpret These declines, as even after the correction, bitcoin is still approximately 370% above early 2023 levels, reflecting the accumulation that the crypto asset has experienced during the last bull market. JP Morgan experts also take this line, although their thesis is different. For the American banking giant, the appreciation of precious metals and the falls of bitcoin show that its role as «digital gold» is more under question than ever, but That’s not necessarily negative. for the crypto asset. The analysts led by Nikolaos Panigirtzoglou highlight that gold has surpassed bitcoin since last October, but with considerably higher volatilitymaking bitcoin «even more attractive compared to gold.» According to these experts, if bitcoin were to match the volatility observed in gold, the price of the digital asset would have to rise to around $266,000. For JP Morgan, what this low volatility does do for bitcoin is highlight its future potential as a haven of value. «This volatility-adjusted comparison with gold is, in our opinion, an unrealistic target for this year, but it shows the long-term upside potential once the negative sentiment is reversed and bitcoin is once again perceived as attractive as gold as a possible hedge against a catastrophic scenario,» they reflect. However, not everyone is so optimistic. CryptoQuant experts believe that numerous on-chain indicators—Bull Score Index, flows in ETFs, the negative BTC premium on Coinbase, low liquidity…— point to a «generalized structural weakness» in the market that could lead BTC to fall below $60,000although a sustained decline below these levels is not yet imminent. «This is a challenging time for investors. When stocks fall on valuation and bubble fears, this can lead to a long slow downtrend. February is not being favorable for market bulls so far; «We will have to see if bitcoin’s recovery above $65,000 is a sign that a deeper recovery is on the way,» Brooks says.
