Bitcoin’s Recent Drop Has Lessons For Investors
The recent drop in the price of bitcoin, and by extension the wider cryptoasset ecosystem, contains several important lessons for investors. For contextual purposes the price per bitcoin briefly dropped below $100,000 in November for the first since June before recovering some stability. Bitcoin, and the cryptoasset community more broadly, is no stranger to volatility or longish periods of bearish performance. Seasoned investors who have experienced prior downturns such as 2018-2019 and the post-FTX collapse drawdown will understand that volatility remains an embedded aspect of the cryptoasset class. Even following the change in administration in Washington D.C. and the flurry of policy changes that have benefited the crypto sector, adoption among both individuals and institutions remain a work in progress.
Given the ongoing geo-political tensions, trade disputes, and government shutdown that continues to paralyze decision-making at the policy level it is interesting to note how well both crypto and equity markets have dealt with these challenges. As with any bearish downturn or even a short-turn drop in price, however, there are lessons that can – and should be – learned from recent market volatility.
Let’s take a look at several lessons and takeaways that crypto investors should keep in mind as crypto volatility returns, policy makers remain sidelined, and the market continues to mature.
AI & Crypto Continue To Be Linked
While AI and automated trading bots have long been dominant in the traditional financial markets and ecosystems, the integration of AI within the crypto sector is accelerating. In the period of just a few weeks in 2025 the market capitalization of AI crypto agents jumped 29% to over $31 billion, and outperformed manual traders by between 15-25% during that same period. For the cryptoasset sector, which has experienced volatility through its history, having bots that are available 24/7 to continuously analyze market patterns, refine trading strategies, and leverage these insights to mitigate risk as well as improving forecasting ability, the benefits are quantifiable and only increasing.
Even more pointedly the intersection between the crypto mining sector and the AI industry has accelerated via recent deals due to the fact that both industries require energy, processing power, and the facilities to host these server farms. As both sectors continue to experience wider adoption among institutional users the power demand, and become lumped together within the broader technology asset class, trading patterns and fund flows continue to merge.
Investors need to simply look at the recent sell-off of (potentially) over-inflated AI valuations and the associated crypto drawdown to see evidence of this convergence.
Crypto Is A Risk-On Asset
Following the approval of the spot bitcoin ETF by the SEC in January 2024 a primary driving force behind the following rally and increase in price of bitcoin and other cryptoassets has been the inflow of institutional funds into the space. Many of the forecasts put forward by TradFi institutions for bitcoin were built on the assumption that ETF fund flows would continue to increase as larger buyers continued to enter the space. As geo-political tensions and trade disputes have continued to escalate, however, the impact on crypto trading patterns and volumes have reflected this. With newer investors, including both institutional and retail investors, having entered the space more recently during the bull market, losses and drawdowns are highlighting the risk-on nature of bitcoin and crypto at large.
As the fund flows into ETFs have slowed recently, larger wallets (holders) of bitcoin have been incrementally selling, and the number of retail wallets have increased this has created a sentiment that is incrementally less bullish than previously forecasted. With the direction of rate decisions at the Federal Reserve uncertain, economic data declining in quality, and trade tensions increasing while the government shutdown continues the risk-on nature of crypto – built on the previous 12 months of positive sentiment and gains – is exposing investors to downside risk as economic conditions remain volatile.
Volatility Remains A Feature
Volatility remains an embedded feature of the cryptoasset ecosystem, rather than a bug that needs to be hedged and/or mitigated out of the marketplace. Despite the recent policy progress, institutional investment and fund flows, and the general pivot in the United States to a pro-technology (including both AI and crypto) the crypto sector remains an emerging asset class. To put the size of the market in context, the crypto sector is worth in excess of $3 trillion, which represents significant growth, but pales in comparison to the trading volume and market capitalization of more established asset classes.
Highlighting this reality is the fact that the price of bitcoin, the gold-standard of crypto from an institutional investing perspective, routinely moves up and down by double-digit percentages. Such volatility would be the cause of incessant market analysis and media commentary if experienced by a leading equity, but for crypto investors this volatility remains a familiar and embedded aspect of the investing thesis. Crypto has come a long way in terms of investor education, policy wins, and investing fund flows but volatility, driven by either market forces or external forces, remains a feature as the market continues to mature.
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