Bitcoin (BTC-USD) is struggling to gain momentum as it heads toward its worst month since June 2022.
As prices hover above $88,000 per token, or roughly 30% off their October all-time highs of more than $126,000, the cryptocurrency’s problems don’t appear to be easing.
And three key challenges for bitcoin have emerged as investors and strategists dig through the rubble of this month’s decline.
First, outflows of bitcoin exchange-traded funds (ETFs) for November have reached $3.5 billion, their largest since February. “That indicates that institutional investors have stopped allocating into bitcoin,” 10X Research founder and CEO Markus Thielen said. “These ETFs have turned into sellers, and as long as they keep selling, I think the markets will struggle to stay up, or rebound,” he said.
Another issue: Thielen pointed to a slowdown in stablecoin minting activity, a warning that could suggest less capital is entering the crypto ecosystem. According to the firm’s data, roughly $800 million flowed out of crypto and back into fiat currencies last week. While not a massive figure, it reinforces the trend that money is not staying within the market.
A stablecoin is a crypto asset that, unlike bitcoin, isn’t supposed to fluctuate. Instead, its price is pegged to other assets, most commonly the US dollar. Because they provide a haven during volatile crypto market swings, their market capitalizations can often increase during periods of market volatility. That happened in the days after crypto’s historic wipeout last month.
Read more: How stablecoins work
However, the trend has reversed: Through Nov. 1, the total market capitalization for stablecoins has dropped by $4.6 billion, according to DeFiLlama data.
“Money is not just failing to come in, it’s actually leaving the crypto market,” Thielen said. “That’s why bitcoin dominance is failing to pick up.”
Recent dovish comments hinting at a Federal Reserve rate cut in December helped lift bitcoin and other assets on Monday. But 10X’s Thielen expects the bounce to fade in the coming days or into the FOMC meeting on Dec. 9.
Even if the Fed cuts in December, it is likely to be a hawkish cut, meaning this rally should be viewed as a short-term, oversold reaction amid extreme fear rather than the start of a sustainable V-shaped recovery. Bitcoin has struggled to recover since the leveraged liquidation event on Oct. 10 wiped out $19 billion in a single day.
The third challenge facing bitcoin: Long-term holders had already been selling into the downturn, possibly in anticipation of the token’s historical four-year cycle. Bitcoin’s past performance from peak to trough has largely followed an every-four-year supply cut known as “the halving.” Many investors now deny that the same trajectory will repeat.
“There has been OG people selling every single cycle,” said Nicolai Søndergaard, a research analyst for blockchain analytics firm Nansen. “I think they just reach that point where they decide, okay, maybe I’ve gotten old enough, and I want to use this money now for something else.”
The sell-off has rippled across nearly every corner of the digital asset space, with total crypto market capitalization falling more than 30%, from $4.28 trillion on Oct. 6 to $2.99 trillion as of Monday.
Ethereum (ETH-USD) has also tumbled 38% since early October, while Solana (SOL-USD) dropped more than 40% during the same period.
Along with the odds that the Federal Reserve lowers its policy rate next month, the best chance for a reversal in the crypto markets, according to Søndergaard, will come from ETFs or more companies buying in.
Strategy (MSTR) and the wave of public companies that have imitated its playbook of adding bitcoin and other digital assets to their corporate balance sheets has significantly cooled. Notably, the company did not make any announcement of weekly token purchases on Monday, following six consecutive weeks of buys.
While Strategy is still in the green, many of these other so-called digital asset treasuries (DATs) are now underwater on their crypto positions.
Meanwhile, bitcoin miners like IREN (IREN), Riot (RIOT), and Mara Holdings (MARA) have retraced more than 30% to the downside, despite their pivots toward servicing the AI sector.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
David Hollerith covers the financial sector, ranging from the country’s biggest banks to regional lenders, private equity firms, and the cryptocurrency space.
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