Bitcoin Plunges: $80,000 Level in Jeopardy, Market Sentiment Crucial

Bitcoin Plunges: $80,000 Level in Jeopardy, Market Sentiment CrucialOn February 28th, Bitcoin's price briefly dipped below $80,000, hitting a new low since November 2024 and representing a nearly 40% drop from its near $110,000 high on January 20th. This crash triggered widespread panic, resulting in over 200,000 liquidations globally within 24 hours, totaling a staggering $803 million (approximately 5

Bitcoin Plunges: $80,000 Level in Jeopardy, Market Sentiment Crucial

On February 28th, Bitcoin's price briefly dipped below $80,000, hitting a new low since November 2024 and representing a nearly 40% drop from its near $110,000 high on January 20th. This crash triggered widespread panic, resulting in over 200,000 liquidations globally within 24 hours, totaling a staggering $803 million (approximately 5.85 billion RMB), with the figure continuing to rise. Other cryptocurrencies also experienced significant declines, with Ethereum falling over 7.6%.

This recent crypto "panic sell-off" began this week, with Bitcoin dropping over 10% and Ethereum falling 15.87% in the past week. SOLUSD saw a weekly decline of 15.97% and a staggering 39.61% monthly drop.

Late last year, Bitcoin and Tesla, two leading components of the "Trump trade," experienced a meteoric rise, only to enter a period of sharp correction. Many analysts previously held bullish views, boldly predicting Bitcoin prices reaching $120,000 or even $200,000 this year. However, Goldman Sachs, Standard Chartered Bank, and Bitcoin company executives are now issuing bearish warnings, cautioning investors that Bitcoin is at a critical "crossroads" in its consolidation phase. Experts widely agree that the key to Bitcoin's future trajectory lies in market sentiment: will it rebound or plunge into a new price crash?

The reasons behind this significant correction are multifaceted, with the massive sell-off by US Bitcoin funds being a major contributing factor. iShares Bitcoin Trust (IBIT), managed by BlackRock, the world's largest Bitcoin ETF by assets under management, experienced its largest single-day outflow on February 26th, with redemptions reaching $418 million, marking seven consecutive days of net outflows. Beyond BlackRock, Fidelity, Grayscale, and ARK Invest, led by "Cathie Wood," have also faced significant selling pressure on their Bitcoin funds, with daily withdrawals reaching tens or even hundreds of millions of dollars.

Following Trump's election victory, the market widely anticipated positive developments for the crypto space, such as relaxed regulations or the inclusion of Bitcoin in US reserves. These expectations attracted a surge of investment. However, a month into Trump's new term, Bitcoin didn't experience a renewed rally but instead saw a sell-off. The reasons behind this warrant further investigation.

One direct trigger for the sell-off was the largest theft in crypto history. Last Friday, Bybit, the world's second-largest cryptocurrency exchange, was hacked, with over 400,000 cryptocurrencies worth more than $1.5 billion transferred to unknown addresses. This event rekindled market panic, and coupled with previous Bitcoin theft incidents, severely eroded investor confidence in the security of cryptocurrencies. Trump's underwhelming performance on cryptocurrency issues after taking office also disappointed investors.

Hu Jie, a professor at the Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, points out that Bitcoin lacks cash flow, making it inherently volatile. Its price is largely driven by investor expectations and sentiment. While pre-inauguration comments about relaxed regulations and the celebrity effect fueled Bitcoin's price surge, the recent sharp correction is also linked to Trump's post-inauguration focus on domestic and foreign policy, with no substantial pro-crypto policies enacted. Waning investor enthusiasm has impacted Bitcoin price expectations.

Ding Zhaofei, chief analyst at HashKey Group, echoes this sentiment, stating that Trump's support for digital currencies has been significantly less than expected. He hasn't mentioned any policy support for digital currencies, and previously promised favorable policies haven't materialized. This policy vacuum has exacerbated the market's low morale. The hype surrounding "Trump coin" has not had a positive impact; instead, it has led to market illiquidity, further intensifying pressure on the cryptocurrency market.

Furthermore, Bitcoin's price plunge coincided with a decline in risk assets, reflecting adjustments in investor expectations regarding the US macroeconomic situation and tech stocks. Ding Zhaofei notes that the recent Bitcoin correction is also primarily due to a major adjustment in the AI narrative triggered by Deepseek, leading to a revaluation of related tech stocks and causing a ripple effect that impacted the digital currency market. With overall sentiment towards risk assets worsening, Bitcoin, as a high-risk asset, couldn't escape the downturn. Simultaneously, the Federal Reserve's concerns about inflation persist, virtually halting hopes for further rate cuts, increasing pessimism about liquidity prospects and exacerbating Bitcoin selling pressure. A lack of new capital inflows, coupled with expectations of tighter liquidity, has led to a collective slump in Bitcoin and other crypto assets.

Faced with Bitcoin's stagnant growth and continued selling, many institutions have issued investor warnings. JPMorgan Chase analyst Nikolaos Panigirtzoglou points out that the inversion of Bitcoin futures and spot prices indicates weakening demand for Bitcoin and Ethereum futures, a bearish signal for the short-term crypto market that could lead to a significant drop in Bitcoin's price. Geoff Kendrick, global head of digital asset research at Standard Chartered Bank, believes Bitcoin will continue to fall, suggesting he would only buy more around the $80,000 level.

Last month, Bitcoin prices soared, reaching a record high of $110,000. Currently, Bitcoin is fluctuating around $85,000, with its future direction remaining uncertain. Many analysts believe Bitcoin is at a "critical crossroads," and investors are undoubtedly awaiting the actual delivery of Trump's promised benefits.

In early February, David Sacks, Trump's appointed "crypto czar," stated in a press conference that the feasibility of Bitcoin reserves was being assessed, while Congress was forming a bipartisan task force to accelerate the development of cryptocurrency regulations. Trump's previous claim of adding Bitcoin to the US strategic reserves had been a market focus, and would undoubtedly be a significant positive factor for boosting Bitcoin demand.

However, Hu Jie believes the likelihood of Bitcoin being included in US reserves is very low, suggesting it's more of a "story" fabricated by the Trump administration to stimulate the market. There are two main paths to include Bitcoin in national reserves: the US Treasury purchasing Bitcoin for hedging and appreciation, which is unreasonable due to Bitcoin's high volatility and risk; or the Federal Reserve purchasing market assets to inject liquidity. While the Fed could theoretically buy any asset, it usually chooses stable assets like gold and Treasury bonds. Introducing Bitcoin could lead to violent fluctuations in the central bank's balance sheet, contradicting sound monetary issuance and management practices, and would likely be unacceptable to Federal Reserve Chairman Powell.

Looking ahead, Ding Zhaofei anticipates significant pressure on the cryptocurrency market in the short term, but believes a structural rebound is still possible in the long term. Once the US stock market correction ends, Trump fulfills his policy promises, or certain events revive expectations of rate cuts, the market may regain momentum. Furthermore, Trump's proposed US sovereign wealth fund, which could bypass current legislation to purchase digital assets like Bitcoin, could be a major positive factor for the market.