Bitcoin (BTC) Nosedives 30% From Its January Peak, Sparking Concerns About Its Near-Term Stability

Bitcoin's recent nosedive has left investors gripping their seats. The cryptocurrency plummeted 30% from its January peak, sparking concerns about its near-term stability.

Bitcoin (BTC) price has come a long way since hitting lows of $77,041 in March following a 30% correction from January’s highs. As the cryptocurrency’s price continues to recover, new data from Bitfinex sheds light on what drove the sell-off and whether more downside is in sight.

As Bitfinex analysts point out, short-term holders (STH) played a crucial role in Bitcoin’s sharp correction from a peak of $109,590 in January to lows of $77,041 in March.

According to Bitfinex, STH, defined as those who hold coins for less than 30 days, accumulated substantial unrealised losses. In an effort to mitigate these losses and avoid further depreciation, they panicked and sold, ultimately accelerating the downturn.

“The short-term holders tend to be more sensitive to market noise and react more impulsively to volatility, often selling at local lows,” Bitfinex analysts explained.

Their capitulation also coincided with the absence of institutional buying activity, which usually helps absorb some of the selling pressure. However, this time, institutions remained largely indifferent, leaving Bitcoin vulnerable to the full brunt of the sell-off.

While institutions played a role in Bitcoin’s rally earlier in the year, recent data shows that their demand has been weakening. Notably, Bitcoin futures exchange-traded funds (ETFs) saw outflows of $920 million during the week of March 9-15, highlighting a lack of interest from major investors.

“These massive outflows suggest that institutions are not yet confident enough to buy the dip despite the recent price declines,” Bitfinex analysts stated.

Without any significant buying pressure from institutions to counter the sell-off, Bitcoin is unable to absorb the excess selling supply. For the market to stabilize, we may need to see renewed inflows into crypto ETFs or large-scale purchases from institutions.

“Without this type of participation, the market remains susceptible to unpredictable swings in price, driven primarily by retail sentiment,” Bitfinex analysts added.

However, despite the March lows, Bitcoin’s price has since recovered somewhat, and it appears that the worst of the sell-off might be over.

As the cryptocurrency’s price rose 9.5% from its March lows to reach $84,357, it seems that buyers are returning at lower levels. If this trend continues, it could lead to further stability for Bitcoin.

According to Bitfinex, this stability at lower prices could be a factor that is familiar from past cycles. As Bitfinex analysts note, in previous cycles, when Bitcoin experienced a 30% correction, it was usually followed by a strong comeback.

“History shows that such corrections often mark a bottom before upward momentum resumes. However, optimism should be tempered by the fact that macroeconomic risks remain elevated and investor confidence is still shaky, which could derail any recovery in the making.”

In addition to the crypto market trends, broader economic concerns are also affecting Bitcoin’s price. Notably, U.S. consumer confidence reached a two-year low in March, while inflation worries persist.

Furthermore, a Federal Reserve model predicts a 2.8% contraction in GDP by early 2025, which might indicate a recession. In the same vein, global trade war rumors are also putting pressure on Bitcoin’s role as a safe-haven asset.

Despite the White House announcing a strategic Bitcoin reserve, there are still doubts about whether Bitcoin can truly protect investors from macroeconomic storms.

The outflows from crypto ETFs also highlight the waning interest from institutional investors. Over five weeks, Bitcoin-focused products saw outflows of $5.4 billion, according to CoinShares data.

This marks a series of outflows that now total $6.4 billion as institutions continue to flee riskier assets amid shaky markets. While ETFs played a role in supporting Bitcoin’s price earlier in the year, their decreasing influence might leave the asset vulnerable.

“Without any significant buying pressure from institutions to counter the sell-off, Bitcoin may struggle to absorb the selling supply and return to its highs.”