Why Bitcoin is down 24% after hitting $126K, and why altcoins look even worse

Bitcoin hit an all-time high of $126K on October 6. However, it has been bearish since then, losing 24% of its value in the last six weeks.

The bearish performance comes despite the Federal Reserve cutting interest rates twice over the past two months.

Altcoins have been hit the hardest, with most of them yet to recover from the October 10 deleveraging event.

Altcoins could suffer further losses in the months to come as investors approach this cycle differently from the previous ones.

BTC, ETH, and others suffer huge losses

Bitcoin, the leading cryptocurrency by market cap, dropped to the $93K level on Sunday, its lowest level since May.

The bearish performance affected other major altcoins, with Ether retesting the $3K psychological level once again.

Ripple’s XRP is also trading below $2.5, while Binance’s BNB has declined below $1K after hitting an all-time high of $1,370 a few weeks ago.

Thanks to the ongoing bearish performance, the total cryptocurrency market cap has declined to the $3.2 trillion level, losing $1 trillion since the all-time high of October 6. 

Bitcoin’s decline comes amid slowing institutional demand

Bitcoin’s recent decline below $100K comes amid a massive selloff of spot Bitcoin ETFs by institutional investors.

Data obtained from SoSoValue revealed that spot Bitcoin ETFs recorded an outflow of over $1.1 billion last week, one of the biggest weekly outflows since the funds launched roughly a year ago.

The declining institutional demand can be attributed to the tightening liquidity, as the US government shutdown has kept the Treasury general account elevated.

With the liquidity policy set to be relaxed in the near term, analysts expect Bitcoin’s price to benefit immensely.

Furthermore, 95% of Bitcoin’s total supply has been mined, indicating that only 2.05 million bitcoins are yet to to mined. However, the scarcity hasn’t positively affected Bitcoin’s price recently.

While speaking to Cointelegraph, Thomas Perfumo, a global economist at crypto exchange Kraken, said this could change soon because annual supply inflation is currently around 0.8% per annum, and hard money requires a credible narrative for people to confidently adopt a currency as a store of value.

According to Perfumo, the scarcity will help Bitcoin’s value in the long term. 

Jake Kennis, a senior research analyst at the onchain analytics platform Nansen, pointed out that the latest milestone will not directly affect Bitcoin’s price in the near term. 

It emphasizes Bitcoin’s scarcity, but the remaining 5% will take well over 100 years to reach 100% circulation due to halving events.

While increased scarcity can psychologically support prices, this particular milestone is more of a narrative event than a direct price catalyst.

Analysts highlighted that the latest milestone indicates that Bitcoin is transitioning from a growth phase to one with fixed, predictable long-term scarcity, and this is important for institutional adoption.

Investors are rewriting the altcoin narrative

One of the hottest debates within the Crypto Twitter (X) community in recent months is when the altcoin season will begin.

Most altcoins have yet to hit the all-time high levels they recorded in 2021-2022, despite Bitcoin and Ether recording new all-time highs earlier this year.

With most altcoins down 40-50% from their 2021 highs, it remains unclear if the crypto market will experience the altcoin season similar to the previous cycles.

The October 10 deleveraging events saw some altcoins crash by over 40% within a few hours, with most of them yet to recover.

According to a recent Bloomberg report, the MarketVector Digital Assets 100 Small-Cap Index, which tracks the 50 smallest digital assets in a basket of 100, fell to its lowest level since November 2020 on Sunday before paring some losses.

In previous cycles, the small-cap index often outpaced its large-cap counterpart, benefiting from traders’ hunger for high-risk, high-reward bets.

This cycle reversed this trend, with the approval of the Bitcoin and Ether ETFs seeing more institutional inflow into large-cap assets.

Pratik Kala, portfolio manager at Australia-based hedge fund Apollo Crypto, pointed out that investors are learning from the previous cycles and focusing more on altcoins with strong narratives.

Over the past five years, the small-cap index has been down nearly 8%, while its large-cap counterpart has surged about 380%.

The stark difference in performance shows where funding is currently going.

With the XRP ETF now live and other ETFs tracking assets such as Solana, Dogecoin, Litecoin, and BNB, currently in the pipeline, it could be argued that more institutional funds will flow into large-cap assets in the near to medium term.

This could leave other low-cap assets stranded, ushering in a new era of maturity to the cryptocurrency market.

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