Bitcoin has fallen over the past few weeks, and the bear market is likely to continue through the end of the year as new investors sell the token and related exchange-traded funds, according to Compass Point. The largest cryptocurrency by market capitalization is trading at $89,800, down more than 20% in the past month and about 30% from the asset’s all-time high in early October, just north of $126,000. The decline comes as highly leveraged crypto positions are being liquidated, with traders moving away from risk-on investments into risk-off assets such as gold as mixed economic data and concerns about the valuation of artificial intelligence stocks. Some long-term Bitcoin holders are also selling some of their holdings at this time due to the popular but controversial belief that Bitcoin’s “halving” schedule determines its trajectory according to a predictable four-year cycle. Bitcoin’s underlying network undergoes a “halving” every four years. This programmatically cuts in half the amount of rewards individuals receive for mining new tokens on the Bitcoin blockchain. It aims to control the amount of Bitcoin in circulation, making the asset more rare and potentially more valuable. Investors who invested in Bitcoin when it was trading above $100,000 are likely to panic and sell as the digital currency struggles, putting further pressure on Bitcoin in the short term, Compass Point said. BTC.CM= Last month’s 1 million BTC mountain “Bear markets in BTC typically end after wealth is transferred to stronger holders,” analyst Ed Engel said in a note to clients. He added that “the capitulation of top buyers, including HODLers who bought for $100,000 or more” likely means “BTC is hitting bottom.” The analyst suggested that investors who got into Bitcoin through exchange-traded funds (ETFs), which were approved in the U.S. early last year, may be particularly responsible for the decline in Bitcoin. “BTC bounced back above the ‘true market average’ of $82,000, which reflects the average cost basis of BTC investors this cycle,” Engel said. “This level is consistent with the average cost basis of $83,000 for BTC ETF holders.” However, Engel also notes other signs that Bitcoin will reach a bottom this cycle, including increased net accumulation by long-term token holders and a negative perpetual funding rate indicating that leveraged longs have exited the market. “While we do not expect Bitcoin trading to be as bad as previous bear markets, we would like to see net accumulation by hodlers and more aggressive short positions by futures traders before we see a more constructive development,” Compass Point analyst Ed Engel said in a note.
