Key Points
- Bitcoin and other cryptocurrencies have experienced a significant downward trend this year, losing over $1 trillion in value.
- Concerns about a potential self-inflicted US recession have been a catalyst for the crypto market’s decline.
Cryptocurrencies, including Bitcoin, have seen a significant decrease in value this year, with losses exceeding $1 trillion.
Bitcoin (BTC) has witnessed a significant decrease from its year-to-date high of $109,300 to $82,000. Other well-known altcoins such as Ethereum (ETH), Ripple (XRP), and Cardano (ADA) have experienced even steeper declines.
Fear in the Financial Markets
The drop in cryptocurrency prices can be attributed to increasing fear in the financial markets. Both the crypto fear and greed index and the fear gauge tracked by CNN Money have dropped into the extreme fear zone.
The main trigger for this sell-off is the growing worry that the United States is on the path to a self-inflicted recession due to tariffs imposed by Donald Trump. These fears have overshadowed positive developments in the crypto industry.
For instance, the Securities and Exchange Commission has concluded several lawsuits affecting companies like Uniswap, Kraken, and Coinbase. Moreover, an executive order was signed by Donald Trump to establish a strategic Bitcoin reserve and digital coins stockpile. Major institutional investors like Citadel, Blackrock, Rumble, and Trump Media have also begun acquiring Bitcoin.
Potential for Further Declines
Bitcoin and other altcoins could face additional losses if the S&P 500 index forms a death cross pattern, a technical formation that often indicates the start of a prolonged bear market. The gap between the 50-day and 200-day weighted moving averages (WMA) of the S&P 500 index has continued to shrink. The last time this pattern formed in 2022, the index dropped by 23%.
The S&P 500 index is often considered a reliable indicator for the crypto market as both are considered risky assets and typically move in correlation.
Bitcoin’s price has already formed a death cross, with the 50-day and 200-day moving averages crossing each other. This happened after Bitcoin fell below the key support level at $89,000. Consequently, it is likely that Bitcoin will drop to either $73,722 or $68,960 before bouncing back.
The upcoming Federal Reserve interest rate decision could potentially prevent further declines in the S&P 500 and crypto market. A more dovish tone, as suggested by the US dollar index and the bond market, would likely lead to a market rebound.
