Bitcoin, the leading cryptocurrency, has dropped below the $90,000 mark for the first time since mid-November, raising concerns among investors and analysts about the sustainability of its market rally. On February 25, Bitcoin fell to $87,800, marking its lowest price point since the recent record high of $109,000 set at the inauguration of Donald Trump. The latest decline of over 8% within 24 hours reflects worries about factors affecting the crypto market, including geopolitical tensions, regulatory uncertainties, and significant hacks.
The downward trend is not isolated to Bitcoin. Other major cryptocurrencies including Ethereum, which saw losses of 11%, and XRP, which dropped by 15%, have also suffered. Market analysts attribute the crypto downturn to various factors. Javier Cabrera, a market analyst, indicated the aftermath of the Bybit hacking incident, where over $1.4 billion was stolen, has contributed to eroding investor confidence across the sector. He emphasized the need for cryptocurrency exchanges to bolster their security, as the fallout continues to negatively impact investor sentiment.
The hack, one of the largest in the history of the industry, has left many wondering about the overall security and trustworthiness of cryptocurrencies. "This highlights the need for exchanges to have very solid security mechanisms to protect their customers' holdings," Cabrera warned, even though he acknowledged Bitcoin's distinct characteristics compared to other cryptocurrencies.
Javier Molina, another market analyst from eToro, indicated the struggle Bitcoin has faced as it fluctuated between the $90,000 and $100,000 thresholds. "By losing both significant support levels of $96,000 and $90,000, potential issues could arise, hinting at strong corrections," he stated. Carlos Salinas, who teaches at IEB on blockchain and investment, pointed out the historical nature of such corrections, explaining they often trigger domino effects leading to rapid price drops.
The situation has worsened with reports from CoinGlass indicating total liquidations of cryptocurrencies reached approximately $1.34 billion, affecting 362,000 traders within just 24 hours. These liquidations followed Bitcoin's plunge below $90,000, leading to cascading sell-offs from leveraged positions. Most recently, Bitcoin represented $523 million of these liquidations as investors rushed to cut their losses.
Interest from institutional investors has also seemingly waned following aggressive sell-off patterns observed over the past weeks. With the Biden administration yet to announce specific policies benefiting cryptocurrencies, uncertainty has set the stage for declining prices. Bitcoin ETFs (Exchange-Traded Funds) have recorded significant outflows, summing to over $516 million on February 24 alone, with six consecutive days of selling contributing to Bitcoin's downward spiral.
Recent macroeconomic trends, including rising inflation expectations, combined with geopolitical tensions, have compounded investor fears, resulting in cautious movements within the cryptocurrency space. Iliya Kalchev from Nexo reported, “Despite favorable political stances for Bitcoin, the crypto market remains significantly influenced by prevailing macroeconomic factors. High interest rates and reduced global purchasing power have led to notable drops in open interest and cash inflows.”
The Bitcoin market, accustomed to volatility, is facing scrutiny as it grapples with these economic pressures, leading analysts like Kalchev to voice concerns about the current rally's sustainability.
On the heels of the Bybit hack, other digital assets also felt the heat of the fallout. Ethereum, trading around $2,300, plunged 11% as fears increased over network vulnerabilities, rooted partly due to the recent hack. Adolfo Contreras from Blockstream pointed out flaws within Ethereum's design could make it susceptible to similar future breaches, intensifying user distrust.
Solana, touted for its speed and low transaction costs, also navigated rocky waters as it experienced considerable price drops. Speculative coins attempting to capitalize on recent trends have surged, leading to pronounced volatility within markets. Amid the noise, analysts warn of a potential “neolottery” model, where digital assets experience rapid rises unsupported by technological fundamentals.
The cumulative effect of these incidents leads to concerted pressure not only on Bitcoin but also on the wider crypto ecosystem. Companies reliant on Bitcoin as part of their investment strategy have also seen marked declines. Coinbase dipped 8%, with other firms like Riot Platforms and Mara Holdings dropping more than 12%.
Market experts continued to analyze the shifting dynamics as Bitcoin tries to reclaim lost ground amid hesitant trading volumes. Ongoing geopolitical tensions coupled with domestic policy uncertainty have compounded worries among investors across the board.
"The most important support level to watch is around $72,000," indicated one analyst. If Bitcoin drops below this threshold, it could spell disaster for a market already on shaky ground. Despite present troubles, some analysts maintain optimism, predicting Bitcoin will resume its upward trend long before altcoins do, with potential hurdles existing along the way.