Bitcoin has plummeted to a six-month low, driven by a confluence of factors including growing fears surrounding artificial intelligence (AI) valuations and a broader risk-off sentiment in the market. This decline marks a significant shift in momentum, leaving many investors concerned about the near-term outlook for the cryptocurrency.
The price of Bitcoin briefly dipped below $100,000, touching $98,400, a level not seen since May. This represents a sharp fall from its all-time high of $126,272 reached in early October, placing Bitcoin firmly in bear market territory, down 24.4% from the peak. Ethereum and other altcoins have also experienced significant losses, exacerbating the overall negative sentiment in the digital asset market.
One of the primary drivers of this downturn is the growing concern over inflated valuations in the AI sector. After months of relentless gains fueled by AI hype, investors are beginning to question whether these valuations are justified by current revenue realities. This has led to a reduction in risk across the board, with institutional investors who had allocated capital to both AI and crypto markets trimming their positions. The strong correlation between crypto and tech stocks, particularly AI plays, has become increasingly evident, undermining the narrative of Bitcoin as a safe haven or a portfolio diversifier.
Adding to the downward pressure is a sense of macro uncertainty fueled by delayed inflation data and weak U.S. job numbers. Expectations of a December Federal Reserve rate cut have also diminished, reducing liquidity and further weighing on risk assets. The inability of the U.S. government to release October economic data has sparked recession fears, prompting investors to seek safer havens.
Long-term Bitcoin holders have also contributed to the sell-off, with approximately 815,000 BTC changing hands in the past month, the largest monthly outflow in over a year. This suggests that even seasoned investors are losing confidence in a sustained rally. Institutional interest is also fading, with inflows into U.S.-listed spot Bitcoin ETFs slowing significantly. CoinDesk reported the second-largest single-day net outflows from these ETFs since their launch.
The technical picture for Bitcoin also appears weak. The cryptocurrency has broken through its 200-day moving average, a key support level, signaling further potential downside. However, Bitcoin's relative strength index (RSI) has fallen to 30.45, approaching oversold territory, which could suggest that the bearish momentum may be nearing exhaustion and a potential stabilization or short-term rebound is possible.
So, how are pro traders positioned amidst this turmoil? The overall sentiment is one of caution, with many traders reducing risk and waiting for a clearer direction. CME traders have reduced risk, while offshore platforms maintain elevated leverage. Aggressive moves are considered risky in this environment of extreme fear, and patient traders may be watching for potential rebound opportunities. The high level of volatility and uncertain liquidity conditions further contribute to the cautious approach.
Despite the current downturn, some remain optimistic. MicroStrategy, for instance, has continued to buy "quite a lot" of Bitcoin, according to its executive chairman Michael Saylor. The massive wipeout of leveraged positions, exceeding $960 million, including $827 million from Bitcoin, also indicates a potential for a market reset and a possible shift in momentum.
Ultimately, the near-term outlook for Bitcoin remains uncertain. The cryptocurrency faces significant headwinds from AI valuation fears, macro uncertainty, and waning institutional interest. How professional traders navigate these challenges will be crucial in determining whether Bitcoin can weather the storm and regain its upward trajectory.
