Bitcoin faces 3 big problems as the cryptocurrency struggles to rebound amid 30% slide from record highs
Bitcoin (BTC-USD) is struggling to gain momentum as it heads toward its worst month since May 2022.
As prices hover above $89,000 per token, or roughly 29% 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 stablecoins 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. 17.
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.
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