Bitcoin Falls Below $90,000 as Bearish Trends Intensify

Bitcoin experienced a significant decline on December 1, 2023, dropping below the pivotal threshold of US$90,000. The world’s leading cryptocurrency fell by as much as 6.1 percent during the day, ultimately settling at US$86,461 by 11:20 GMT. This marks its largest single-day drop in a month and brings it dangerously close to last month’s eight-month low of US$80,553. November proved particularly challenging for Bitcoin, which lost over US$18,000, representing its largest dollar loss since May 2021.

Market Dynamics and Investor Sentiment

The decline in Bitcoin’s value coincides with a broader selloff in both stock and digital asset markets, attributed to growing risk aversion among investors. Analysts note that, despite Bitcoin’s relatively short history, it does not exhibit strong seasonal trends in December. Generally, Bitcoin has averaged a 9.7 percent increase in December, making it the third-best month for performance historically, while October remains the strongest with an average gain of 16.6 percent.

Currently, Bitcoin’s performance is closely aligned with stock market trends. According to Kathleen Brooks, research director at XTB, “Bitcoin tends to be a leading indicator for overall risk sentiment right now, and its slide does not bode well for stocks at the start of this month.” She observed that the sharp decline in market volatility may have caused unease among investors, particularly given the uncertain outlook for the remainder of the year.

Additionally, CME Bitcoin futures reveal growing bearish sentiment. Futures contracts set to expire in three months are trading at their smallest premium relative to those expiring this month in over a year. This suggests that investors are less confident in a sustained rise in Bitcoin’s price.

Factors Contributing to Bitcoin’s Decline

Several negative developments have compounded pressure on Bitcoin. Last week, S&P Global downgraded its rating of Tether, the largest stablecoin, citing an increase in higher-risk assets in its reserves and ongoing “persistent gaps in disclosure.” Tether has publicly disagreed with this assessment.

In another concerning signal, Phong Le, chief executive of Strategy, the largest corporate holder of Bitcoin, indicated on the “What Bitcoin Did” podcast that the company would consider selling its Bitcoin holdings if its “mNAV” metric—enterprise value compared to Bitcoin holdings—falls below 1. Currently, this ratio stands at approximately 1.19.

Shares of Strategy, along with other cryptocurrency firms such as Coinbase and mining companies like Riot Platforms and MARA Holdings, saw declines of 3 to 4 percent in pre-market trading. Strategy’s stock has plummeted 60 percent over the past year, which contrasts with a 13 percent drop in Bitcoin during the same period. This significant decline raises the risk of Strategy being excluded from benchmark indices, further intensifying pressure on the stock and its mNAV metric.

The overall cryptocurrency market has witnessed a dramatic contraction, losing over US$1 trillion in value since peaking at around US$4.3 trillion, according to data from CoinGecko. As the market grapples with these shifts, investors remain cautious, weighing the implications of declining values and shifting market sentiment.

As Bitcoin hovers below US$90,000, the coming weeks will be critical in determining the direction of both the cryptocurrency and broader financial markets.