(Bloomberg) – Attempts to accurately decipher what is driving Bitcoin prices are often an cumbersome effort with multiple offset catalysts in the mix.
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That’s what market observers are trying to unfold the reason behind the slide, which cut the original cryptocurrency by 28% from a record of over $109,000 on January 20, when crypto supporter Donald Trump launched as US president.
Below are the most commonly cited reasons for drops:
Macroeconomic concerns
Bitcoin is not the only asset that has declined over the past few weeks. The US stock market has also experienced a DIP, dropping the Nasdaq 100 index by about 7% from its final record on February 19th. Bitcoin is often considered a “high beta” asset.
The decline in stock and a rallies of consent at the U.S. Treasury Department have been attributed to concerns about the potential economic impact of Trump’s plan to impose further tariffs on trading partners.
“This tanking can be seen as a response to the macro fears of Trump’s tariffs and geopolitical uncertainty,” said Caroline Bowler, CEO of BTC Markets, of the recent decline in crypto prices.
The biggest hack ever
This week, the losses have resulted in Bitcoin and its second-largest cryptocurrency, ether, to a few months’ low after the Buybit exchange hack on February 21st. The attack, which has been widely criticized by the North Korean Lazarus group, has leaked around $1.5 billion from the exchange.
Not only was the worst theft ever in crypto history, it also shocked market participants as it targeted a kind of crypto custody known as “cold wallets,” which was considered extremely secure because it included hardware that was not connected to the internet.
Zaheer Ebtikar, co-founder of Crypto Fund Split Capital, said: “I’m sure there’s someone I like a bit: “What do you know? Maybe I can wait a little longer for that.”
ETF leak
Certainly, both may be happening for similar reasons, so there is a bit of a chomping when connecting spot Bitcoin exchange sales funds and cryptocurrency prices inside and outside.
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Still, it has an echo effect. When Bitcoin prices drop, investors naturally withdraw money from ETFs that track assets. Secondly, when these leaks are recorded, the signals sent from the ETF market could lead to crypto traders selling more bitcoin.
The February Bitcoin slump corresponded to the largest monthly net leak of spot Bitcoin ETF groups since its launch in January 2024, according to data compiled by Bloomberg.
“The hot money chasing Bitcoin, or speculative trade, flows out as quickly as it came in when prices started falling,” said Michael Rosen, chief investment officer at Angeles Investments.
“Cash and Carry” alias based transactions
Ebtikar and others said they believe the rewinding of what is known in Crypto as “cash and carry trade” played a role in the selling. Trade, similar to what is known as the basis trade in traditional markets, is a way to benefit from the inconsistency in pricing between spot markets and futures markets.
If the futures market price is trading higher than the spot price, traders can sell futures, buy spot bitcoin, and earn profits on the difference. However, futures traders in CME and elsewhere remain defensive, with a lower premium on Bitcoin futures on exchanges. According to a report from K33 Research on February 25, the annual March premium fell to 5.7%, while the following month’s premium fell to a low that was not seen since last July.
“We’re looking forward to seeing you in the future,” said Mark Connors, founder and chief investment strategist of Risk Dimension. “Of course we have full sellers. But we see most of the profitable ARB opportunities that have skyrocketed in this recent recession.”
Trump’s trade is relaxing
The prices of many assets investors believed would benefit from Trump’s return to the White House have fallen in recent weeks. Bitcoin was undoubtedly the top “Trump Trade.” The Securities and Exchange Commission has removed many lawsuits and investigations into crypto companies in Trump’s first few weeks, in the eyes of at least some traders, but further advances in support have slowed.
Trump has vowed to create what he calls the strategic national stockpile of Bitcoin in the campaign trajectory. His Republican ally, Sen. Cynthia Ramis of Wyoming, followed a bill that requires the government to purchase it to build up to one million bitcoins in five years. However, there has been little to say about the plan since then, and Lummis’ bill has not gained much support in Congress. Trump’s executive order, supporting the industry, called for research into digital assets stockpiles that have not reached its promise to create a Bitcoin reserve.
“What drives this is the lack of news of a positive enforcement order that some experts have been expecting, as well as the number of inflation in the US,” said Paul Howard, senior director of market maker Wincent.
Lumis suggested on Friday that progress on the Bitcoin Stockpile proposal will likely take longer than many crypto advocates hope for, and “my bet is to see the state has a strategic reserve for Bitcoin before the federal government.”
Lawmakers from Montana, North Dakota, South Dakota and Wyoming have voted to establish state-level crypto reserves in the past few weeks, citing concerns about risks and volatility associated with digital assets.
– Support from Sidarta Shukla and David Pan.
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