Bitcoin is coming off its worst week in months as the narrative fades and currencies fluctuate
Bitcoin will be forced to start in June as the market loses its leading narrative and liquidity continues to turn to other assets.
This combination has left the top cryptocurrency vulnerable to further pressure as investors reduce risk and capital shifts to markets with more momentum or near-term catalysts, such as a chip rally or the SpaceX IPO. Bitcoin is down 13% this week and is headed for its worst week since February, according to Coin Metrics.
It is a common feature of crypto cycles: When the main narrative loses momentum, the buying of funds quickly shifts to other parts of the market. And without a new catalyst to help support demand, bitcoin is vulnerable to sharp, fluid-driven price movements. Now, traders are reassessing what should drive the next leg of the cycle.
On Wednesday, bitcoin ETFs registered their 13th day in a row — and the longest streak ever — of net outflows, according to SoSoValue. Total assets in all currencies fell to $82.8 billion from $107.8 billion on May 14.
Flows are “the main driver of BTC price appreciation, explaining about 45% of the weekly change, and the best vehicle for tracking investor acquisition/appetite,” Citi analyst Alex Saunders said in a note.
He added that bitcoin’s catalyst for reviving investor interest – the chances of passage of the crypto market structure bill known as the Clarity Act – is moving forward as legislative priorities change and lawmakers remain divided on key provisions of the bill.
“We expect sentiment to remain volatile, especially as the financial divide remains prominent, with no good news on regulations or fears of ‘unfair trading’ on the financial position,” Saunders said.
What happened this week
This week’s key start was Monday’s surprise revelation from Michael Saylor Strategy reveals the sale of 32 BTC for about $2.5 million – marking its first bitcoin sale since 2022 and the second sale ever – to help pay for preferred stock obligations.
The move was well-telegraphed by the company and represents less than 0.004% of its assets. However, the about-face from Saylor’s “never sell your bitcoin” has become a new way in which the bitcoin treasury acts as a source of funds that has broken the confidence of investors. The strategy and bitcoin collapsed that day.
That led to a long layoff that accelerated the pressure. When leveraged traders who bet on high prices are forced out of their positions, traders automatically sell their holdings to cover losses. Crypto exchanges recorded $594 million in long-term trading over a 24-hour period, according to CoinGlass.
The problem is there
For several months, bitcoin has broken through its main narrative. It does not act as a digital gold that benefits from global uncertainty, nor does it act as an inflation hedge. And it doesn’t behave like a high beta tech stock.
In fact, while bitcoin is in a bearish state, the stock market has not been able to set an all-time record and money is moving elsewhere as investors chase the chip rally and their interest in AI infrastructure grows. Chip makers Advanced Micro Devices, Intel again Micron the number has more than doubled this year. The private market euphoria surrounding companies like SpaceX and Anthropic has become a focus for growth-oriented investors.
While it is not clear how much of the remaining crypto currency is in hot trading, it is clear that bitcoin is losing the competition to rising speculative currencies.
“With the market at a very high level for weeks now (led by tech), one would think that this would be a good place for crypto to work. Could it be that AI and Semis are just absorbing all the excess money?” Wolfe Research analyst Rob Ginsberg wrote in a note Thursday. “After all, who in their right mind would choose to buy crypto right now when you can close your eyes, buy Semiconductor stock and [have] 2-3x your investment in weeks.”
A road map going forward
On Monday, investors will learn whether the Strategy was a buyer, seller or inactive this week. If the company comes back as an aggressive buyer after its small but significant sell-off last week, it could help stabilize sentiment.
If the report shows that it was sold or inactive, it may call traders to worry about one of the most important sources of crypto demand structure.
“When MSTR last sold BTC … it bought back more than it sold 2 days later,” said Geoff Kendrick of Standard Chartered. “This time I suspect that the buying that follows the sale will be very aggressive – I think 10x (+ 320 BTC) or 100x (+3200 BTC). If I am right, the question is how will the markets take it? I can see it as a sign of trying to print a low, and given that logic, the suspect was found to be selling on the weekend of MSTR on the weekend of the sale. BTC this week).
Further down the road, Wolfe says that even though bitcoin has broken its defining narrative, its typical four-year cycle — three years up followed by one year down — is still a good guide, though it may mean traders remain stuck in this bear market for many months to come.
“We continue to follow a 4-year cycle. You don’t have to mislead us and you continue to keep us on track,” Ginsberg said. “With a 381-day high and a 79% decline, it means the lows are below $40,000 in late October. While nothing is ever perfect, we see no reason to write it off – especially since those targets are always going so well.”
