The world’s largest cryptocurrency, Bitcoin, crashed below US$96,000 on Friday—the lowest level in more than six months—highlighting how the crypto market is not immune to broader investor sentiment turning defensive. What began as a gradual fade in hopes of a US central-bank rate cut has morphed into a broader retreat from high-volatility assets, leaving Bitcoin particularly exposed as risk appetite dampens and liquidity tightens.

Macro signals and the unraveling of bullish momentum

Bitcoin’s fall below the $96,000 mark came amid a sharp recalibration of expectations around the Federal Reserve’s interest-rate policy. Previously, the market had priced in a strong chance of a December rate cut—hovering around 90% probability at one point—but that figure has fallen to near 50% as more Fed officials expressed reluctance to extend easy policy. With easy money fading and global growth concerns mounting, high-risk assets began to underperform, and Bitcoin followed suit.

This retreat from risk also coincided with broader pressure on equity indexes, weaker momentum in technology stocks and rising US dollar strength—all factors that historically apply downward pressure on cryptocurrencies. Bitcoin’s decline now constitutes its third straight weekly loss and leaves it roughly 24% below its early-October peak. These developments mark a dramatic shift from the “Uptober” narrative many Bitcoin bulls hoped would fuel further gains.

Why Bitcoin is vulnerable in a risk-off environment

Although Bitcoin is often touted as a non-correlated asset with hedge potential, the reality in recent weeks has exposed its dependence on risk-on market behaviour. In a tightening regime, three structural vulnerabilities have emerged: first, many Bitcoin holders employ leverage, which means even mild downward movements can trigger liquidations and amplify declines; second, institutional buying which supported deeper rallies has slowed sharply; and third, Bitcoin lacks yield, making it less attractive compared with carry-generating or income assets when rates rise and safe-haven flows dominate.

On-chain data adds further concern: long-term holders—typically the least likely to sell—have increased outflows in recent weeks. One analytics firm noted that about 815,000 BTC changed hands in the last 30 days, the largest aggregate movement from long-term wallets since early 2024—a sign that earlier conviction may be cracking. At the same time, cryptocurrency exchange-traded funds and over-the-counter volumes have shrunk, pointing to dampening institutional demand.

From a technical standpoint, the breach of $96,000 is more than a round number—it represents a pivot point where sentiment changes from optimism to caution. Bitcoin’s previous highs near $126,000 in October now look increasingly distant. The sharpness of the drop and its rapid advance to multi-month lows reflect momentum fatigue and a shift in market psychology. Indicators such as the Fear & Greed Index for cryptocurrencies have plummeted into “Extreme Fear” territory, which traditionally either precedes panic-driven sell-offs or, in rare cases, early phases of accumulation.

Moreover, Bitcoin’s current price sits dangerously close to reported all-in mining cost estimates—levels often considered a structural floor under normal circumstances. But in the current environment of heightened uncertainty and global liquidity strain, these support levels may offer limited help. With risk-off flows accelerating, analysts now warn that further retreat toward $90,000 or even sub-$85,000 cannot be ruled out if macro conditions worsen.

What happens next—and why this matters for broader markets

Bitcoin’s slump is significant not just for crypto markets but for what it reveals about investor behaviour in the current cycle. The asset’s drop is part of a larger wave of volatility affecting risk assets, from emerging-market currencies to growth-oriented stocks. The risk-off tone suggests liquidity is being reallocated toward safer instruments and the era of cheap and abundant capital may be drawing to a close.

Looking ahead, several key factors will determine whether Bitcoin can stabilise or continue its slide. First, any clarity from the Fed about rate-cut timing will reverberate through crypto markets. If easing is postponed further or outright cancelled, risk assets may face another leg down. Second, inflows into crypto vehicles such as ETFs will indicate whether institutional interest is returning or remains on hold. Third, any improvement in economic data, inflation trends or global risk sentiment could reverse some of the pressure. But until then, Bitcoin’s decline may persist as a barometer of risk appetite.

Bitcoin is being tested not as a hedge against fiat or traditional markets, but as a leveraged proxy for global investor sentiment. Its slide into six-month lows underscores how tightly it is tethered to the broader financial ecosystem and how quickly fortunes can reverse when the narrative shifts.

(Adapted from TheGlobeAndMail.com)

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