Since the end of January, Bitcoin’s decline has accelerated significantly, dragging the entire crypto market down with it. How can we explain this widespread collapse, now considered to be an ongoing “structural decline”?
Trauma linked to the October 11 crash that refuses to fade away
In the space of just four months, Bitcoin has once again demonstrated its legendary volatility, falling from an all-time high of $126,000 in early October to a decline of nearly 50% at the beginning of February. This wiped out all the gains associated with the Trump effect, settling 10% below this symbolic starting threshold. The BTC price is currently trading at around $65,000, with the main prospect being a possible return to the $50,000 level. However, analysts at Kobeissi Letter claim that “the fundamental situation for crypto has not really changed over the last 60 days.” So why this massive and widespread decline?
Clearly, the answer to this question requires a look back at the historic crash of October 10 and its record liquidations estimated at $19.5 billion in total, nine times more than the previous record in the field.
According to analysts at Kobeissi Letter, “something structural seems to have changed on October 10, and the markets have never really managed to recover from it.” A loss of confidence led to an almost perfect downward trend that no rebound has managed to reverse.
A situation equivalent to the collapse of FTX in 2022
At present, crypto investor sentiment as measured by the Fear & Greed index is obviously in “extreme fear” territory, except that the score displayed today by all of these tools appears to be historically low. And it could get even worse…
In this context, liquidations are continuing at a rapid pace, totaling $10 billion since January 24, or more than 50% of the record set on October 10. This is accompanied by a “spread of selling pressure to other asset classes” such as the stock market, “despite good results and few fundamental changes.”
This is “further evidence of the structural nature” of this crisis, which is also reflected in the depth of the Bitcoin market. Indeed, the capital available to absorb large orders is currently more than 30% below its October peak. “The last time this happened was after the collapse of FTX in 2022 .“
This raises the question on everyone’s mind: when will Bitcoin—and the crypto market as a whole—hit bottom? According to analysts at Kobeissi Letter, the answer is obvious: ”when structural liquidity returns.”
This will require a combination of price capitulation and leverage, as well as extremely bearish sentiment. We seem to be gradually approaching this point.
Kobeissi Letter
The prospect of a good entry point?
At the same time, waiting for a bullish rebound to take a position when the price of Bitcoin is currently at very attractive levels seems like a strategic mistake, as Vincent Ganne points out in his latest special video on the subject.
In fact, periods of intense market stress are usually the best entry points to ensure significant returns once the storm has passed, particularly when using a dollar-cost averaging (DCA) investment strategy.
Of course, the risks taken must not exceed those that one can afford to bear. And there is no guarantee that the price of BTC will not continue to fall in the coming weeks before stabilizing and returning to an upward trend.
