Bitcoin Plummets Below £79,000 as Market Confidence Wanes

Bitcoin’s value has sharply declined, falling below £79,000 (approximately $100,000) for the first time since June. The world’s largest cryptocurrency experienced this downturn amid growing concerns about a potential US government shutdown and slowing global economic growth. This latest drop follows a notable surge earlier in October when Bitcoin peaked at over £99,000 (around $126,000). In less than a month, it has lost nearly 20% of its value, highlighting the fragile nature of investor sentiment in today’s market.

Analysts attribute this decline to several factors, including significant selling by large holders, often referred to as “whales.” According to Sean Farrell, head of digital assets at Fundstrat, billions in Bitcoin have shifted from private wallets to exchanges, signaling preparations for further sales. Farrell remarked, “Whales—they continue to hammer price,” emphasizing that liquidity pressures could prolong this volatility.

Another notable figure in the analysis, Ed Engel from Compass Point, pointed out that over one million Bitcoins have been traded since June as long-term holders liquidated their positions. While such selling is typical during bullish markets, it has coincided this year with a decline in retail investor engagement and reduced inflows into Bitcoin exchange-traded funds (ETFs). Engel noted that October, usually a strong month for Bitcoin, has not exhibited the expected trends, reminiscent of the steep drop in November 2018.

Market dynamics are further complicated by economic indicators, with manufacturing data indicating contraction for the eighth consecutive month. Jerome Powell, Chairman of the Federal Reserve, has adopted a cautious approach to potential interest rate cuts, leaving traders with limited support. Both stock markets and digital assets have struggled for direction as high inflation continues to weigh heavily on investor confidence.

The ongoing US government shutdown has exacerbated these issues. The Treasury General Account, the government’s primary checking account, remains frozen, delaying anticipated liquidity injections into risk assets. Farrell stated that the likely extension of the government shutdown into December stalls these expected liquidity tailwinds, which could have supported risk assets as the year draws to a close.

Despite these challenges, Farrell expressed cautious optimism about the potential for recovery. “I’m still optimistic for year-end,” he said, suggesting that the current volatility should be manageable in the long term. The downturn has effectively erased Bitcoin’s summer rally, aligning its performance with the broader sell-off of risk assets.

In New York, Bitcoin plummeted by as much as 6.5% to £78,900 (approximately $99,963), marking its lowest point since June. Other cryptocurrencies have also faced declines, with Ether dropping 9.6% and several altcoins plummeting over 50% from their yearly highs.

Chris Newhouse, research director at Ergonia, explained that Bitcoin’s decline reflects a market still burdened by the psychological impact of October’s massive liquidation event. He added that traders’ hesitancy has kept open interest in futures significantly below pre-crash levels, limiting momentum. Options traders are preparing for further declines, heavily favouring put contracts with strike prices near £63,000 (around $80,000).

Despite the prevailing gloom, Fundstrat maintains a surprisingly upbeat year-end prediction for Bitcoin, projecting a price range of £118,000 to £157,000 (approximately $150,000 to $200,000) if market sentiment stabilises and liquidity improves. For now, the digital asset market remains ensnared in uncertainty, navigating the complexities of macroeconomic caution, technical selling, and the lingering effects of past market events.