Bitcoin sinks with safe haven bets 'clearly favoring gold' after crypto washout

Bitcoin (BTC-USD) has had a rocky first half of October so far.

The world's largest cryptocurrency surged to start the month as investors sought a hedge against US government shutdown uncertainty. Last Friday, it plunged from $121,000 as low as $104,000 following President Trump's threat of 100% tariffs on Chinese goods.

Bitcoin's descent was particularly notable against the backdrop of gold (GC=F), which has climbed to new all-time highs past $4,200 and is up 16% in the past month. Bitcoin, by comparison, has yet to recover from Friday's losses and is down 8% in that period.

"Right now, capital is clearly favoring gold due to its momentum and reduced volatility profile," Sean Farrell, head of digital asset strategy at Fundstrat, told Yahoo Finance. "There are also structural buyers in central banks, which provides a quasi-backstop to the trade."

He noted that investors are likely to eventually rotate into bitcoin from gold since the precious metal tends to front-run crypto.

On Thursday, bitcoin was trading around $108,000 per token. Wall Street veteran strategist Ed Yardeni explained its precipitous drop last week in a note on Wednesday.

"The crypto derivatives ecosystem exacerbated bitcoin's recent fall," Yardeni wrote. "During the abrupt drop, liquidity dried up, with over $19 billion in liquidations across crypto futures and leveraged positions."

When prices dropped rapidly, platforms automatically closed risky trades to prevent bigger losses, he said.

Traders also noticed a "whale" who pocketed $192 million shorting bitcoin ahead of the sudden crash, a move that could have exacerbated the selling. That same wallet placed another bearish bet late Sunday.

Crypto bulls entered October with expectations of a strong month, as the token has risen in 10 of the past 12 years, according to Compass Point Research.

The cryptocurrency hit all-time highs north of $126,000 per token last week, along with precious metals that also hit records, in what Wall Street has dubbed the "debasement trade," or a hedge against weakening fiat currencies.

Crypto analysts predict bitcoin will close out the year higher, with JPMorgan forecasting a price target of $165,000. Meanwhile, Citi sees the token reaching $133,000 during the same time period and $181,000 by the end of 2026.