According to BCA Research’s analysis, the sharp drop in Bitcoin’s price in December, followed by a recovery, paves the way for the market to return to being influenced by broader economic factors. Recently, the market has been more dependent on forced selling and internal issues within the crypto industry.
BCA analysts, led by Artem Sakhbiev, believe that the recent decline was caused more by the elimination of speculative hype than by a deterioration of fundamental indicators.
The drop began with a sharp price decline, but Bitcoin then quickly recovered. BCA attributes this to a series of specific events rather than a change in investor risk appetite.
Among the key factors influencing the market, BCA highlights: the revision of quantitative traders’ strategies, S&P Global’s downgrade of Tether’s rating, MicroStrategy’s warning about potential Bitcoin sales, and the tightening of cryptocurrency regulation in China.
Data shows a sharp deterioration in investor sentiment. In October, there was a record liquidation of long positions, and the valuation of companies holding Bitcoin fell below the value of their assets, indicating pessimism.
Analysts also note a decline in the share of profitable Bitcoins to its lowest level since the end of 2023, as well as a fall in the Fear and Greed Index to levels seen during the 2022 “crypto winter.”
After the market shed excess leverage, BCA believes Bitcoin is poised to return to reacting to broader economic factors as institutional demand continues to grow. The long-term outlook, according to the analysts, remains positive.
Examples are provided to support this thesis: Vanguard has allowed cryptocurrency investments on its platform, Bank of America has approved the allocation of a portion of client assets to cryptocurrencies, and inflows into exchange-traded funds (ETFs) have turned positive again. BCA’s global asset allocation strategy notes that stable inflows contribute to reduced volatility over time.
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