Bitcoin Plummets as Market Sentiment Turns Sour Following Post-Trump Rally
The euphoric surge in Bitcoin’s price that followed Donald Trump’s victory in the U.S. presidential election has come to an abrupt halt, leaving many recent investors facing significant losses. Just weeks after reaching an all-time high above $100,000, the leading cryptocurrency has plunged into a bear market, currently trading around $80,000, a near 25% decline from its January peak.
The sharp correction has been fueled by a confluence of factors, including a broader sell-off in global stock markets, concerns about U.S. tariff policies, worries about the health of the global economy, and a general decline in risk appetite.
The rapid influx of new investors during the post-election rally, many of whom entered the market chasing quick profits and using borrowed money, are now feeling the brunt of the downturn. Data from crypto analytics firm Glassnode reveals that at least 20 million new Bitcoin addresses were created in the past three months, representing approximately 1.5% of all existing Bitcoin addresses.
The "spent output profit ratio," a metric that compares the prices at which new Bitcoin is bought and sold, has fallen to 0.95, marking its lowest level in over a year and turning negative for the first time since October, according to estimates from crypto exchange Bitfinex. This indicator suggests that recent buyers are realizing substantial losses, creating particularly challenging conditions for newcomers to the market.
Analysts at Bitfinex have pointed out the stress being experienced by recent investors, stating that "recent buyers are locking in significant losses, reinforcing the exceptionally challenging conditions for newer investors." The rapid rise and subsequent fall have created a volatile environment that tests the resolve of even seasoned cryptocurrency enthusiasts.
Adding to the market’s woes, U.S. spot Bitcoin ETFs experienced substantial outflows. On February 25, these ETFs saw outflows of around $1.1 billion, representing the largest single-day outflow since their launch in January last year, according to J.P. Morgan.
Donald Trump’s executive order to establish a U.S. crypto reserve, while initially providing a temporary boost to the market, has failed to prevent the ongoing corrective sell-off. According to John Glover, chief investment officer of crypto lending platform Ledn, "This corrective selloff has caught many by surprise," adding that the asset could find support at the $73,500 level.
The use of leverage by some traders has amplified the pain of the downturn. Bitfinex analysts report that leveraged positions have incurred overall losses hovering above $800 million per day, with February 28 and March 4 witnessing some of the most significant single-day losses.
Investment products tracking digital assets have also experienced outflows for the fourth consecutive week, according to CoinShares data. Total assets under management in these products have declined by approximately $4.75 billion to $142 billion, reaching their lowest level since mid-November 2024, immediately following the U.S. election.
"I was surprised to see bitcoin at $80,000, and it looks like the bloodletting hasn’t ended yet," remarked Kevin Dede, an analyst at investment bank H.C. Wainwright, highlighting the uncertainty surrounding the market’s future.
While past sell-offs in crypto markets have often been followed by periods of stabilization, Bitcoin’s immediate fate appears to be tied to broader market trends. The implied volatility of Bitcoin, as priced into derivatives, has surged to 69% in the past 24 hours, while the implied volatility of Ethereum, the second-largest cryptocurrency, has increased from 65% to 90% since Monday, signaling that investors anticipate further volatility ahead, according to Amberdata.
Jeff Dorman, chief investment officer at asset manager Arca, noted that "The last two weeks have 100% been driven by the equity market tantrum." He added, "This likely plays out similar to what we saw in late 2018, which was nothing more than a short-term hiccup on the way to further highs." Dorman’s perspective offers a glimmer of hope that the current downturn may be a temporary setback on the path to continued growth.
The dramatic fluctuations in the cryptocurrency market following Trump’s election serve as a stark reminder of the inherent risks involved in digital asset investing. The rapid gains experienced by early investors fueled a frenzy that drew in a wave of newcomers. The subsequent decline highlights the importance of caution, diversification, and a long-term investment horizon when navigating the volatile world of cryptocurrencies. While some analysts remain optimistic about Bitcoin’s long-term prospects, the current market conditions underscore the need for investors to exercise due diligence and avoid being swept up in speculative bubbles.
Bitcoin is currently at a crucial moment, with its trajectory heavily influenced by external economic factors and investor sentiment. Observers closely monitor its performance as it grapples with its recent decline. The coming weeks will be vital in determining whether Bitcoin can regain its footing and resume its upward trajectory or if it will continue to struggle under the weight of market pressures.
