Bitcoin has fallen over the past few weeks and will likely continue trading lower through the end of the year as newer investors sell the token and exchange-traded funds tied to it, according to Compass Point. The largest cryptocurrency by market capitalization traded around at $89,800, down more than 20% over the past month and about 30% off the asset’s record high just north of $126,000 hit in early October. The declines come amid liquidations of highly leveraged crypto positions, with traders pulling out of risk-on investments into risk-off assets such as gold due to mixed economic data and worries about valuations in artificial intelligence stocks. Some long-term bitcoin holders are also selling some of their holdings at this time due to a popular, but controversial, belief that the token’s “halving” schedule dictates its trajectory according to predictable four-year cycles. A “halving” happens every four years on bitcoin’s underlying network. It programmatically cuts in half the amount of rewards individuals get for mining new tokens on the bitcoin blockchain. It aims to control the amount of bitcoin in circulation, making the asset more scarce and potentially more valuable. As the digital currency struggles, investors who got into bitcoin when it was trading above the $100,000 mark are likely sell in a panic, putting more pressure on the asset in the near term, Compass Point noted. BTC.CM= 1M mountain BTC in past month “BTC bear markets typically end after wealth transfers to stickier holders,” analyst Ed Engel said in a note to clients. He added that “capitulation from top buyers, including HODLers that bought above $100,000” will likely signify “BTC is hammering out a bottom.” The analyst suggested that investors who got into bitcoin through exchange-traded funds, which were approved early last year in the U.S., could especially be driving the token’s sell-off. “BTC has bounced off the $82k ‘True Market Mean’ which reflects the average cost basis for BTC investors this cycle,” Engel said. “This level aligns with the $83k average cost basis for BTC ETF holders.” But Engel is also watching for other signs bitcoin has hit its nadir this cycle, including higher net accumulation among long-term token holders and negative perpetual funding rates that would indicate leveraged longs have been flushed out of the market. “While we don’t expect BTC to trade as poorly as prior bear markets, we’d like to see net accumulation from HODLers and more aggressive short positioning from futures traders before getting more constructive,” Compass Point analyst Ed Engel wrote in the note.
