Has Bitcoin’s bull run ended?
Bitcoin has fallen 50%, but history suggests that volatility alone does not mean the story is over.
Hello, it’s Callum Newman from Marcus Today. In this video we’re talking about Bitcoin. As you probably know, Bitcoin has had a severe sell-down lately. It has gone from around US$125,000 per coin down towards US$60,000. That is a very dramatic collapse.
I’ve followed Bitcoin for a long time. I still remember back in 2017 when it first went over US$20,000. That was a very big deal. Little did we know how much higher it would eventually go.
Why is Bitcoin selling off?
Bitcoin is very sensitive to risk sentiment and liquidity. At the moment, both of those factors are fading fast out of the market. In fact, Bitcoin started to slow its price appreciation before the current Nasdaq sell-down we are seeing now. In that sense, it can act as a leading indicator.
Last year, the dominant narrative was the debasement trade. The idea was that the US dollar would come under severe selling pressure and the US bond market would sell off as federal debt and deficits continued to build. Gold went on a massive run as part of that trade.
Now Bitcoin is caught up in something of a reversal. The US dollar has bottomed for the moment and is starting to show some strength. So is the US bond market. President Trump recently appointed his nominee for the new Fed chair, who is opposed to some previous Fed policies that were seen as supportive of Bitcoin. Investors are reassessing whether the new regime will be as bullish for the cryptocurrency.
The liquidity cycle and volatility
Perhaps the biggest factor right now is the global liquidity cycle. This is tracked closely by Michael Howell at CrossBorder Capital. The global liquidity tailwind that supported Bitcoin appears to be peaking and losing momentum. Bitcoin is signalling that shift.
Volatility is also part of the story. Historically, Bitcoin has been extremely volatile. Ark Invest recently released a chart showing that last year was unusual because Bitcoin was relatively calm. That lack of volatility was the anomaly. It is now returning to its more typical behaviour.
If you look at its history over the past decade, Bitcoin has suffered multiple sell-downs even larger than 50%. In 2022, when the Fed raised rates aggressively, Bitcoin slumped roughly 80% from its high before recovering.
Where to from here?
Bitcoin has also become highly correlated with the Nasdaq and technology shares in recent years. Both are under pressure at the moment due to concerns around AI disruption and software sector uncertainty. It may be that we need to see the Nasdaq stabilise before Bitcoin can find its footing.
At the same time, the long-term trends behind the US dollar, federal debt and deficits have not disappeared. If those concerns return to the forefront, we could see a revival of the original debasement trade and, potentially, a rising Bitcoin price again.
It remains a fluid and volatile situation, and one we will be watching closely over the next two to three years.