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Citi explains the reasons for the recent weakness in the cryptocurrency market
Cryptocurrency markets have recently shown weakness after the largest liquidation of digital tokens in history occurred in October amid U.S. threats to impose triple-digit tariffs on goods from China and tighten export controls on software.
On October 10, concerns about the consequences of these statements triggered the liquidation of more than $19 billion in margin positions across the crypto sector.
Analysts noted that this was the largest 24-hour crash ever observed in the cryptocurrency market — nine times greater than the one in February and 19 times larger than in 2020.
Bitcoin, the world’s largest cryptocurrency, later recorded its first monthly decline since 2018 in October, even as stock indices were rising amid enthusiasm about artificial intelligence applications.
The AI-related euphoria somewhat faded last week, as investors became concerned about the sustainability of inflated valuations in the tech sector, while the reduced appetite for risk provided little support for Bitcoin’s growth.
On Wednesday, Bitcoin briefly fell below the symbolic $100,000 level, at one point reaching its weakest point since mid-June. Bitcoin also entered a bear market, having fallen by more than 20% from its record high of early October at $126,186.0.
Analytics firm CoinGlass also showed that more than $1.27 billion in crypto margin positions were liquidated earlier this week. Most of these liquidations were long positions, as traders betting on further Bitcoin price increases suffered from the token’s decline.
In a client note, Citi analysts added that data showed a gradual decrease in the number of Bitcoin “whales,” or large holders of the cryptocurrency, while the number of small “retail” wallets has risen.
“Some large, long-term holders may have turned into sellers. Declining funding rates may also indicate reduced demand for leverage,” said Citi analysts, including Alex Saunders and Nathaniel Rupert.
“Technically, the situation is no better: Bitcoin is now trading below its 200-day moving average, which likely also suppresses demand. We still believe we are at an early stage of the adoption cycle for financial advisors and other investors, but flows into spot ETFs will be a key factor to watch for sentiment changes,” they added.
See also: "Samson Mow: Bitcoin will repeat the evolution of gold"
