Bitcoin, the world’s leading cryptocurrency, experienced a continued decline on Monday, extending its retreat from the all-time high achieved just last week. Despite this recent downturn, the digital asset has still enjoyed a remarkably successful year, showcasing its resilience and continued appeal to investors. As of Monday evening, Bitcoin’s price hovered just below $93,000, marking its lowest close since November 27th. This represents a 14% drop from its record high of over $108,000 set the previous Tuesday, officially placing Bitcoin in correction territory—a decline of 10% or more from a recent peak—for the first time in four months.
The ripple effect of Bitcoin’s slump has been felt across the broader cryptocurrency market, with the total market capitalization of all cryptocurrencies plummeting by approximately $500 billion from its peak of $3.9 trillion the prior week. Bitcoin, representing roughly 56% of the overall crypto market, currently holds a market cap of $1.9 trillion. This decline has not been confined to Bitcoin alone. Publicly traded companies with significant exposure to the cryptocurrency sector also experienced a downturn on Monday. MicroStrategy, a major Bitcoin holder, witnessed a 9% drop in its stock price. Coinbase, a prominent cryptocurrency exchange, saw its stock decline by 4%, while Marathon Digital, a leading Bitcoin miner, also experienced a 4% dip. All three of these companies have seen their stock prices fall by at least 20% from their respective peaks reached earlier in the month.
The current Bitcoin selloff coincides with a broader trend of losses across riskier assets, including stocks. The S&P 500, a key indicator of the U.S. stock market’s performance, has declined by 2% over the past week. A major catalyst for these declines was the Federal Reserve’s meeting on Wednesday, which signaled increasing concerns about persistent inflation and projected fewer interest rate cuts in 2025 than previously anticipated. This news negatively impacts risk assets like cryptocurrencies, as investors tend to shift their funds to safer, higher-yielding government bonds when interest rates are expected to rise.
The rationale behind this shift is that higher interest rates on government bonds make them a more attractive investment compared to riskier assets like cryptocurrencies. As Yuya Hasegawa, a crypto market analyst at the Japanese crypto exchange bitbank, explains, “Monetary easing has almost always favored the price of bitcoin, and the opposite has a negative impact on the price.” This inverse relationship between interest rates and Bitcoin’s price underscores the influence of macroeconomic factors on the cryptocurrency market. When interest rates rise, the appeal of safe haven assets like bonds increases, drawing investment away from riskier assets and potentially leading to price declines.
Despite the recent correction, it’s essential to contextualize this within Bitcoin’s historical volatility. Significant price swings are not uncommon for the cryptocurrency, which experienced a similar correction exceeding 20% this past summer and an even more dramatic 70% drop from 2021 to 2022 before reaching its all-time high earlier this month. Despite these periodic downturns, Bitcoin’s overall performance in 2024 remains remarkably strong, boasting a 120% year-to-date gain and a 36% surge since the recent election, which saw the return of crypto-friendly Donald Trump to the presidency.
The post-election surge, mirroring similar trends in other assets like Tesla stock, highlights the potential influence of political developments on investor sentiment and market dynamics. While Tesla stock has also experienced a pullback of 12% from its recent record high, it remains significantly higher than its pre-election levels, demonstrating the sustained positive impact of the election outcome on certain asset classes. This illustrates the complex interplay between political events, investor confidence, and market performance, particularly in the volatile cryptocurrency space. The recent downturn in Bitcoin, while significant, should be viewed within the context of its historical volatility and the broader market landscape. While concerns about interest rate hikes and macroeconomic factors may contribute to short-term price fluctuations, Bitcoin’s long-term trajectory remains a subject of continued debate and speculation.
