Bitcoin Plummets 30% as Short-Term Holders Sell, Institutional Demand Wanes

Bitcoin has experienced a significant correction, with its price retracing by 30% from its all-time high of $109,590, reached on January 20, to a low of $77,041 during the week of March 9-15. This correction, the second-largest of the current bull run, was driven by selling pressure from short-term holders, who are defined as those who have bought within the last seven to 30 days. These holders have incurred net unrealized losses and are more prone to capitulation, according to analysts at Bitfinex, a crypto exchange.

The ongoing outflows from Bitcoin ETFs, totaling around $920 million during the week of March 9-15, indicate that institutional buyers have not yet returned with sufficient strength to counter the selling pressure. This lack of institutional demand is a key factor in the current market dynamics. Bitcoin's price has since rebounded by 9.5% to around $84,357, but the future direction of the market will depend on whether institutional demand picks up at these lower levels. If it does, it could lead to supply absorption and price stabilization.

Bitfinex analysts suggest that a 30% drawdown has historically marked the low before a continuation higher. If Bitcoin stabilizes around the current level, history suggests a strong recovery could follow. However, the current macroeconomic climate may be weighing on the markets. US consumer confidence has fallen to its lowest level in two years, and there are expectations of higher inflation along with economic uncertainty. On March 4, a Federal Reserve’s model predicted that the US economy would shrink by 2.8% in the first quarter of 2025.

Ongoing trade war discussions continue to dominate the news, casting doubt on Bitcoin's status as a safe-haven asset and potentially putting the bull market in peril. Despite the White House's recent announcement of a US Bitcoin strategic reserve and digital asset stockpile, the market remains uncertain. The future of Bitcoin will depend on whether institutional demand returns and stabilizes the market, or if the current selling pressure and macroeconomic uncertainty continue to drive the price down.