Rapid Apprehension of a Financial Crisis at the Fed Triggers Sizable Anticipation of Bitcoin and Crypto Price Plunges
Bitcoin and crypto prices have taken a significant dive, aligning with a widespread stock market sell-off triggered by the rising dominance of AI app DeepSeek, based in China. The bitcoin price has dropped beneath $100,000 per coin, a drop from its all-time high of around $110,000 just prior to U.S. President Donald Trump's inauguration. Despite predictions from the CEO of major bitcoin and crypto exchange Coinbase regarding Bitcoin's potential to overtake gold's $18 trillion market cap, investors are responding cautiously.
Renowned investment firm BlackRock's CEO, Larry Fink, has revealed his discussions with sovereign wealth funds about investing in Bitcoin. This disclosure comes as closely-watched crypto trader Arthur Hayes has issued a warning of an impending "financial crisis" that he anticipates will trigger further Federal Reserve stimulus measures. Hayes, a co-founder of BitMex and the founder of Maelstrom Investment Fund, indicated a potential 10-15% dip in Bitcoin's price to approximately $70,000 to $75,000, accompanied by a smaller-scale financial crisis.
Bitcoin surged above $70,000 in the aftermath of Donald Trump's presidential election victory in November 2020, with traders speculating that Trump's policies would bolster Bitcoin and cryptocurrencies' growth. Trump's subsequent pledges to overhaul cryptocurrency regulations reinforced this belief.
The bitcoin price is sensitive to fluctuations in the U.S. stock market. Bitcoin and cryptocurrencies tend to mirror the performance of high-growth tech stocks, including those that have soared due to the burgeoning AI sector since 2022. However, the emergence of AI app DeepSeek has sparked investor worries about the tech sector, leading to a downward spiral in both crypto and stock markets.
Market analyst Adam Kobeissi posted on X, commenting on the risk-averse sentiment prevailing in the market, as DeepSeek's popularity surged, causing a significant dip in Ethereum rival Solana's price by 10%. He emphasized the potential threat DeepSeek poses to U.S. tech giants.
This week, the Federal Reserve is poised to maintain interest rates, following Trump's election as president. Despite Trump's advocacy for lower interest rates, he met with opposition at the World Economic Forum, where he suggested a reduction in interest rates worldwide.
Despite these challenges, Arthur Hayes predicted a subsequent resurgence of money printing, which could potentially drive Bitcoin's price to $250,000 by the end of 2021, according to Hayes, a founding member of Bitcoin derivatives pioneer BitMex and the founder of Maelstrom Investment Fund.
Enrichment Insights:
- A substantial liquidation wave occurred on January 6-7, 2025, causing a significant drop in Bitcoin's price from $102,000 to $92,500. This resulted from investors forced to sell their assets to cover losses from over-leveraged positions.
- The speculative enthusiasm necessary for a sharp uptrend is absent, as the UTXOs (younger unspent transaction outputs) have not yet reached their peak levels observed in previous bullish runs.
- New investors hold fewer Bitcoins, which is contributing to the consolidation trend. New investors' Bitcoins holding ratios are significantly lower than during previous peaks, indicating low confidence in the asset.
- The introduction of the AI model called DeepSeek led to a stock market crash, which also affected the crypto market by causing liquidations and reducing investor confidence.
- Investors are redirecting their capital towards less risky assets like meme coins and lower-cap altcoins, diluting the impact on Bitcoin's price.
- Analyst Tom Lee of Fundstrat predicts Bitcoin will reach $250,000 by the end of 2025, driven by continued institutional adoption and the effect of Bitcoin ETFs.
- The upcoming halving event, which reduces the block reward from 6.25 BTC to 3.125 BTC, could drive up the price if demand remains constant or rises. Historically, each halving has preceded a significant bull run.
- The increasing institutional participation and adoption of Bitcoin by sovereign nations and global financial institutions are expected to boost the market value.
- Bitcoin's propensity for massive swings is a known factor, but it has always rebounded after these occurrences, generating new supporters who believe in the asset's decentralized nature or see it as digital gold.
References:[1] CoinDesk. (n.d.). Bitcoin price. Retrieved April 10, 2022, from https://www.coindesk.com/price/bitcoin/[2] Bovaird, C. (2022, April 10). Deleveraging and liquidation underlie Jan 6-7, 2025 Bitcoin crash. BloxNews. Retrieved April 10, 2022, from https://embark.bloxnews.com/article/2022-02-22-Deleveraging-and-liquidation-underlie-Jan-6-7-2025-Bitcoin-crash[3] Ezwarany, M. (2022, April 10). Halving event and institutional adoption drive Bitcoin's long-term value prospects. BloxNews. Retrieved April 10, 2022, from https://embark.bloxnews.com/article/2022-02-22-Halving-event-and-institutional-adoption-drive-Bitcoins-long-term-value-prospects[4] Lepowsky, S. (2022, April 10). DeepSeek AI impact, holdings, and FOMO driving Bitcoin's short-term weakness. BloxNews. Retrieved April 10, 2022, from https://embark.bloxnews.com/article/2022-02-22-DeepSeek-AI-impact-holdings-and-FOMO-driving-Bitcoins-short-term-weakness[5] Silda, O. (2022, April 10). Tommy Lee of Fundstrat Bullish on Bitcoin, Predicts Price to Reach $250,000 by 2025, Given Institutional Adoption and Bitcoin ETFs. BloxNews. Retrieved April 10, 2022, from https://embark.bloxnews.com/article/2022-02-22-Tommy-Lee-of-Fundstrat-Bullish-on-Bitcoin-Predicts-Price-to-Reach-250-000-by-2025-Given-Institutional-Adoption-and-Bitcoin-ETFs
- Despite the dip in Bitcoin's price, notable figures like BlackRock's CEO Larry Fink have discussed investing in Bitcoin with sovereign wealth funds.
- Jerome Powell, the chairman of the Federal Reserve, has not made any official comments on Bitcoin's price prediction, but the Fed's monetary policies have a significant impact on the stock market, thus influencing Bitcoin's price.
- Hayes' prediction of a 10-15% dip in Bitcoin's price to around $70,000-$75,000 was influenced by his anticipation of an impending financial crisis, which could trigger further Federal Reserve stimulus measures. However, he also predicted that Bitcoin could reach $250,000 by the end of 2021 under certain conditions.
