Bitcoin Falls Below US$90,000 Amid Growing Market Concerns

Bitcoin plunged below US$90,000 on December 1, 2023, as a significant selloff intensified following its steepest monthly decline since mid-2021. This downturn was driven by renewed risk aversion that prompted investors to move away from both stocks and digital assets. At one point, Bitcoin dropped by as much as 6.1 percent, settling at US$86,461 by 11:20 GMT, marking a one-day decrease of 5.2 percent. This decline puts Bitcoin close to last month’s eight-month low of US$80,553.

In November, Bitcoin experienced a dramatic loss of over US$18,000, resulting in its largest dollar drop since May 2021, when several cryptocurrencies faced significant collapses. The current market environment reflects a broader trend of investor caution, with many seeking safer asset classes amid geopolitical tensions and economic uncertainty.

Market Indicators and Investor Sentiment

With Bitcoin’s relatively short history, seasonal trends offer limited guidance for traders regarding its December performance. Historically, Bitcoin has seen an average increase of approximately 9.7 percent in December, ranking it third in monthly performance. October remains the strongest month with an average gain of 16.6 percent, while September typically sees an average loss of 3.5 percent.

Analysts have noted a significant correlation between Bitcoin and the stock market, with many viewing Bitcoin as a leading indicator of overall risk sentiment. Kathleen Brooks, research director at XTB, commented, “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 noted that a recent decline in market volatility may have unsettled some investors concerned about the uncertain economic outlook as the year comes to a close.

The futures market also reflects a bearish sentiment. Bitcoin futures set to expire in three months are currently trading at the narrowest premium to those expiring this month in over a year, indicating that investors are less optimistic about sustained price increases.

Challenges Facing Cryptocurrency Investments

Several negative factors are compounding pressure on Bitcoin and the broader cryptocurrency market. Recently, S&P Global downgraded its rating of Tether, the largest stablecoin, due to increased risk in its asset reserves and ongoing disclosure issues. Tether has publicly disagreed with this assessment.

Moreover, Phong Le, CEO of Strategy, the largest corporate holder of Bitcoin, revealed on the “What Bitcoin Did” podcast that the company might consider selling its Bitcoin holdings if its mNAV metric—measuring enterprise value against Bitcoin holdings—falls below 1. Currently, this ratio stands at around 1.19, which could trigger significant strategic decisions if it continues to decline.

Shares in Strategy, along with other cryptocurrency companies like Coinbase and miners Riot Platforms and MARA Holdings, dropped between 3 percent and 4 percent in pre-market trading. With Strategy’s stock having fallen 60 percent over the past year, compared to a 13 percent decline in Bitcoin during the same period, the company risks exclusion from benchmark indices, further exacerbating its financial challenges.

The overall cryptocurrency market, which once peaked at approximately US$4.3 trillion, has now seen a drop of more than US$1 trillion in value, according to CoinGecko. As investors navigate this turbulent landscape, the focus remains on how these developments will impact Bitcoin’s trajectory in the coming weeks.