Bitcoin Loses 28% of Its Value – What’s Behind the Decline?
After a series of sharp fluctuations, Bitcoin has experienced a significant 28% drop in value,
raising questions about the factors driving this steep decline in the world’s largest cryptocurrency.
Contents:
Geopolitical Pressures
Understanding Bitcoin’s price movements has always been a challenge due to the multiple factors influencing the cryptocurrency market.
This has been particularly evident in recent days as analysts attempt to determine the reasons behind Bitcoin’s 28% decline from its all-time high of $109,000 on January 20—the day Donald Trump, a vocal supporter of digital assets, was inaugurated as U.S. president.
Factors Behind the Drop
1. Macroeconomic Pressures
Bitcoin’s downturn did not occur in isolation; it was accompanied by a notable drop in the U.S. stock market,
where the Nasdaq 100 Index lost approximately 7% since its peak on February 19.
Bitcoin is often viewed as a high-beta asset, meaning its price movements are magnified compared to broader market trends.
Concerns over the economic impact of Trump’s new tariffs on trade partners have heightened financial market volatility,
prompting investors to pull back from risky assets, including cryptocurrencies.
Caroline Bowler, CEO of BTC Markets, commented:
“Bitcoin’s recent drop reflects macroeconomic concerns related to Trump’s tariffs and geopolitical uncertainty.”
2. Largest Crypto Hack in History
On February 21, cryptocurrency exchange Bybit suffered a $1.5 billion hack, marking the largest cyberattack in crypto history.
The attack, widely attributed to North Korea’s Lazarus Group, alarmed investors, especially as it targeted “cold wallets”,
a storage method previously considered highly secure due to its offline nature.
Zohaib Ibtikar, co-founder of Split Capital, noted:
“A hack of this magnitude shakes investor confidence, making some reconsider the security of the market.”
3. Outflows from Exchange-Traded Funds (ETFs)
Massive withdrawals from Bitcoin ETFs have added further pressure on prices. In February,
these funds recorded their largest net monthly outflow since their launch in January 2024,
with an exodus of $3.3 billion, according to Bloomberg data.
Michael Rosen, Chief Investment Officer at Angel Investments, stated:
“Hot money that rapidly entered the market left just as quickly at the first signs of a downturn.”
4. Arbitrage in the Derivatives Market
The unwinding of “cash and carry trade” strategies contributed to increased selling pressure.
Premiums on Bitcoin futures at the Chicago Mercantile Exchange (CME) have dropped to their lowest levels since July,
according to a K33 Research report from February 25.
Mark Connors, founder and Chief Investment Strategist at Risk Dimensions, explained:
“ETFs’ movements have been significantly impacted by arbitrage players such as hedge funds operating through futures and options.”
5. Weakening of the “Trump Trade” Momentum
The prices of various assets that were expected to benefit from Donald Trump’s return to the White House have declined in recent weeks,
with Bitcoin among the most affected.
Despite the SEC dropping multiple lawsuits against crypto firms, regulatory support has been slower than expected.
Trump had pledged during his campaign to establish a strategic national Bitcoin reserve,
but this proposal has yet to see meaningful progress.
Meanwhile, lawmakers in Montana, North Dakota, and Wyoming have rejected proposals to create state-level crypto reserves,
citing concerns over volatility and associated risks.
Paul Howard, Senior Manager at Vincent, noted:
“The lack of positive news regarding expected executive orders, combined with U.S. inflation figures, has fueled market caution.”
What’s Next for Bitcoin
As financial markets remain under pressure, investors are closely watching several key factors:
- Future policies of the Trump administration on cryptocurrencies.
- Impact of geopolitical tensions on risk appetite.
- Trends in Bitcoin ETF inflows and outflows.
Despite these challenges, many analysts believe that the market could rebound once economic and political conditions stabilize.
Bitcoin Loses 28% of Its Value – What’s Behind the Decline?