Bitcoin Price Plunges: Panic Selling and the Demise of the $100,000 Myth

Bitcoin Price Plunges: Panic Selling and the Demise of the $100,000 MythA recent report by Lai Zhentao, a reporter for the 21st Century Business Herald, details the dramatic plunge in the Bitcoin market this week. On Wednesday, Bitcoin's price plummeted over 5% intraday, falling below $84,000 a near 20% correction from its all-time high of $100,000 reached in late January

Bitcoin Price Plunges: Panic Selling and the Demise of the $100,000 Myth

A recent report by Lai Zhentao, a reporter for the 21st Century Business Herald, details the dramatic plunge in the Bitcoin market this week. On Wednesday, Bitcoin's price plummeted over 5% intraday, falling below $84,000 a near 20% correction from its all-time high of $100,000 reached in late January. Over the past week, Bitcoin's price has fallen by more than 10%, Ethereum by 15.87%, and SOLUSD by 15.97% week-over-week, with a staggering 39.61% monthly decline. Bitcoin CME futures contracts briefly dipped to $82,625 on Wednesday, marking a three-month low. CoinGlass data shows that as of 8 PM Beijing time on Thursday, 188,000 traders globally liquidated their positions, resulting in $770 million in total liquidations within 24 hours.

Late last year, Bitcoin and Tesla, seen as leaders in the "Trump trade," experienced a meteoric rise. However, both have recently undergone sharp corrections, contrasting sharply with analysts' bullish predictions of Bitcoin reaching $120,000 or even $200,000 this year. Now, Goldman Sachs, Standard Chartered Bank, and Bitcoin company executives are issuing bearish warnings, cautioning investors that Bitcoin is at a crucial "crossroads" in its consolidation phase. Experts interviewed believe that the market sentiment will determine whether Bitcoin will rebound or succumb to another price crash.

Underlying Causes of the Sharp Correction: Selling Frenzy, Hacks, and Dashed Policy Expectations

Over the past few days, US Bitcoin funds have triggered a massive sell-off. iShares Bitcoin Trust (IBIT), the world's largest Bitcoin exchange-traded product (ETP) by asset size under BlackRock, experienced its largest single-day outflow on February 26th, totaling $418 million. Net outflows have been observed for seven consecutive trading days. Besides BlackRock, Fidelity, Grayscale, and ARK Invest, led by "Cathie Wood," have also faced significant selling pressure, with tens to hundreds of millions of dollars withdrawn on Wednesday alone.

Following Trump's re-election, the market widely anticipated favorable policies, such as relaxed regulations or the inclusion of Bitcoin in US reserves, attracting significant investment. However, a month into Trump's new term, instead of a celebratory rally, the market witnessed a massive sell-off. What went wrong?

One of the triggers for this sell-off was the largest-ever cryptocurrency theft. Last Friday, Bybit, the world's second-largest cryptocurrency exchange, suffered a massive hack, resulting in over $1.5 billion worth of more than 400,000 cryptocurrencies being transferred to unknown addresses. This event reignited market panic, exacerbated by previous Bitcoin theft incidents, leading to serious investor concerns about cryptocurrency security.

Furthermore, Trump's muted approach to cryptocurrency post-inauguration 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 highly volatile and primarily driven by investor expectations and sentiment. While Trump's pre-election calls for deregulation and the resulting celebrity effect fueled a price surge, the recent sharp correction stems from his focus on domestic and foreign policy with no concrete supportive policies, dampening investor enthusiasm and negatively impacting Bitcoin's price expectations.

Ding Zhaofei, chief analyst at HashKey Group, echoes this sentiment, stating that Trump's support for digital currencies has been significantly lacking, leading to dashed market expectations. The absence of any policy support and the failure to deliver on promised favorable policies have created a policy vacuum, further depressing market sentiment. Furthermore, the speculation surrounding "Trumpcoin" has not had a positive impact, instead resulting in market liquidity drying up and exacerbating pressure on the cryptocurrency market.

It's noteworthy that Bitcoin's price drop coincided with a decline in risk assets, closely linked to investor adjustments in their outlook on the US macroeconomic situation and tech stocks. Ding further explains that the recent Bitcoin price correction is largely due to a significant readjustment in the AI narrative triggered by Deepseek, leading to a revaluation of related tech stocks and a ripple effect on the digital currency market. With overall risk aversion increasing, Bitcoin, being a high-risk asset, could not escape the downturn. Additionally, the Federal Reserve's concerns about inflation persist, making further interest rate cuts unlikely. The pessimistic outlook on liquidity further fueled Bitcoin selling pressure. Lack of new inflows, coupled with expectations of tighter liquidity, led to a collective downturn in Bitcoin and other crypto assets.

Frequent Institutional Warnings: Can the $100,000 Myth Be Revived?

Faced with Bitcoin's stagnant growth and persistent selling, several institutions have issued warnings to investors. Morgan Stanley analyst Nikolaos Panigirtzoglou, in a client report, noted that the inversion of Bitcoin futures pricing relative to spot prices indicates weakening demand for Bitcoin and Ethereum futures, a bearish signal for the short-term cryptocurrency market, potentially leading to a significant price drop. Geoff Kendrick, global head of digital asset research at Standard Chartered Bank, believes Bitcoin will continue to fall, stating he would only consider adding to his position around the $80,000 mark.

Last month, Bitcoin soared to a new all-time high of $110,000. Currently hovering around $85,000, many analysts believe Bitcoin is at a "crucial crossroads," with its future trajectory uncertain. Investors are undoubtedly waiting for Trump's promised policies to materialize.

In early February, David Sacks, Trump's appointed "crypto czar," announced at a press conference that the feasibility of Bitcoin reserves was being assessed, and Congress was forming a bipartisan task force to expedite the development of cryptocurrency regulations. Trumps previous statements about adding Bitcoin to US strategic reserves remained a market focus, considered a significant positive for Bitcoin demand.

However, Hu Jie believes the likelihood of Bitcoin being included in US reserves is extremely low, suggesting it's more of a "story" fabricated by the Trump administration to stimulate the market. There are essentially two ways Bitcoin could be included in national reserves: the Treasury Department could purchase Bitcoin to preserve and increase the value of fiscal funds, but considering Bitcoin's volatility and high risk, this is not reasonable. Alternatively, the Federal Reserve could buy market assets to inject liquidity, theoretically including Bitcoin; however, it would typically choose stable assets like gold or government bonds. Introducing Bitcoin could lead to drastic fluctuations in the central bank's balance sheet, contradicting sound monetary issuance and management principles a scenario that Federal Reserve Chairman Powell and his colleagues would certainly reject.

Future Outlook: Short-Term Pressure, Potential for Long-Term Structural Rebound

Looking ahead, Ding Zhaofei believes the cryptocurrency market will face significant pressure in the short term, but there's still potential for a structural rebound in the long term. He suggests that if the US stock market correction ends, Trump fulfills his policy promises, or events boost expectations of interest rate cuts, the market could regain momentum. Furthermore, Trump's proposed US sovereign wealth fund plan deserves attention. This plan might bypass current legislation to purchase digital assets like Bitcoin, potentially becoming a significant market catalyst.