Bitcoin (BTC) plunges below $90,000 as analysts predict further drop to $70,000

Bitcoin (BTC) plunged below $90,00 this week, with analysts predicting a further drop to $70,00 as hedge funds unwind their strategies.

Bitcoin (BTC) price slipped below $90,000 on Friday, increasing the potential for another drop to the $70,000 level as analysts predict.

This decline follows massive outflows from spot ETFs and hedge funds winding down their strategies, which had been profiting from the arbitrage between ETFs and futures.

After hitting a high of over $109,000 in January, Bitcoin has lost around 20% in a broad downturn that has also affected major altcoins.

On February 25 alone, spot Bitcoin ETFs saw outflows of over $1 billion, setting a record for the largest single-day outflows since their launch in January 2024.

These outflows come as hedge funds are winding down a strategy that involved going long on ETFs and shorting CME futures, aiming for yields higher than Treasury rates.

However, as Bitcoin price drops and this “basis spread” narrows, these funds are forced to sell ETF shares and buy back futures contracts, Ben Armstrong, host of the crypto YouTube channel "Armstrong and Friends," explained in a recent analysis.

"They've been able to earn a 7% yield going long on the ETF and short the futures, but as the futures price drops and the ETF price drops, the hedge funds will need to sell their ETF shares and buy back the futures contracts."

This activity will exert additional downward pressure on Bitcoin price, potentially opening up the possibility of a move to the $70,000 level, which is a key Fibonacci support.

"Bitcoin goblin town incoming... $70,000 I see you mofo!" warned BitMEX co-founder Arthur Hayes on social media.

"As this 'basis spread' narrows, HF [hedge fund] selling pressure will increase, and they will quickly sell their BTC holdings in a vicious cycle of lower prices and higher borrowing costs."

Standard Chartered analyst Geoff Kendrick advises against buying this dip yet.

"DO NOT buy the BTC dip yet, a move to the low 80s is on the cards as we expect more outflows from ETFs to come as the hedge funds close out their trades and the futures basis continues to narrow," stated the analyst.

Chart patterns also support a bearish outlook, with 10X Research identifying a "diamond top" pattern in Bitcoin's chart, which is often associated with trend reversals.

Their report identifies $73,000 as a key target, aligning with previous support levels and the lower boundary of the diamond pattern.

"The technical indicators suggest that a move towards $73,000 is likely, setting the stage for an interesting showdown between the bulls and bears in the weeks ahead."

Besides ETF dynamics, several factors are fueling the downturn, including the Bybit exchange suffering a massive $1.5 billion hack last week, eroding investor confidence.

"The Bybit hack will exert additional downward pressure on price, and the announcement of new tariffs by President Trump on Mexico and Canada sparks inflation concerns, dampening the outlook for risk assets in general," said Chris Newhouse, a researcher at Cumberland Labs.

The Federal Reserve's preferred inflation report comes out Friday, which could influence interest rates and, in turn, affect cryptocurrency markets.

Cryptocurrency markets are also facing additional strain as the "memecoin boom" appears to be coming to an end.

Popular tokens, including LIBRA, are being associated with a scandal involving Argentina's president, and Melania Trump's namesake token has seen a decline of over 20% this week.

This signals that the memecoin frenzy might be winding down, which could reduce the speculative demand that had been pushing some altcoins to new highs earlier this year.

In other news, trading data from Deribit shows that investors are preparing for the possibility of even lower prices in the coming weeks.

Many investors are buying options that will pay out if Bitcoin drops to the $70,000 level by the March series expiry.

This suggests that some market participants are anticipating a continuation of the recent sell-off, with a potential for a significant drop to the $70,000 level being priced in.

At this price point, strong support from previous lows and the Fibonacci retracement level could encourage buyers to step back in, potentially setting the stage for a rebound. However, only time will tell if this anticipation is accurate.

Market watchers will be focusing on upcoming economic data and Federal Reserve decisions in March, which could signal a turning point for cryptocurrency markets.

For now, the "Trump bump" that propelled Bitcoin to record highs appears to be fading as economic reality sets in, and traders are adjusting their positions accordingly.