The cryptocurrency market is currently facing a sustained and widespread decline, now firmly in bear market territory. How can this situation be explained and its actual impact measured? Let’s take stock…
Crypto market decline: capital is not disappearing, it is repositioning itself
Since Bitcoin’s last historic high of $126,000 on October 6, the cryptocurrency market has begun a veritable descent into hell, largely accentuated by the crash that occurred a few days later, with total liquidations reaching a record $20 billion.
However, certain data already pointed to a decline in investor interest in BTC a few months earlier. Indeed, as noted by the analysis media outlet Zerohedge, “since last June, Bitcoin has strangely become the only asset that falls as central banks inject liquidity.”
The primary cause of this lack of interest can clearly be explained by the current highly tense macroeconomic environment. This has motivated investors to turn to safer assets, such as gold or silver… triggering a historic correction at the end of January, wiping out no less than $7 trillion from their market capitalization in just two days.
But another more structural factor also seems impossible to ignore: the crypto market has become the playground of institutional investors, who are heavily exposed to ETFs and not very risk-averse. This makes “the stabilization of ETF flows [a] key signal to watch,” according to Timothy Misir, head of research at crypto analysis firm BRN. Because “without that, rallies are likely to run out of steam.”
Add to that the massive flight of retail investors, who have been clearly more attracted to the stock market than to cryptocurrencies over the past year. The result: a massive concentration of available liquidity in the market’s major cryptocurrencies, to the obvious detriment of altcoins.
