Bitcoin's Plunge Sparks Pessimism in the Cryptocurrency Market

Bitcoin was teetering on the brink of dropping below the crucial $70,000 mark on Thursday as the world’s largest cryptocurrency continued its relentless slide.

In early European trading, Bitcoin fell by 2%, after dipping as much as 3.5% in the Asian session, reaching $70,052.38, its lowest level since November 2024. Ether also declined by 0.7% to $2,111.34, with a fall below $2,000 marking its lowest point since May last year.

The latest cryptocurrency sell-off is attributed by analysts to the nomination of Kevin Warsh as the next Federal Reserve Chair, which raised expectations of a reduction in the Fed's balance sheet. Bitcoin has dropped over 7% in the week, amassing nearly 20% in losses this year, while ether’s decline nears 30% for the year.

Bitcoin and other cryptocurrencies have traditionally thrived when the Federal Reserve maintained an expansive balance sheet, supporting speculative assets through market liquidity. Manuel Villegas Franceschi from Julius Baer noted, "The market fears a hawk with him. A tighter balance sheet could hinder crypto progress."

The cryptocurrency realm has faced turmoil since last October’s significant crash that deflated Bitcoin from peak levels as leveraged positions collapsed. This has dampened investor enthusiasm, rendering sentiment about the industry fragile.

According to Deutsche Bank analysts, "This broader decline is driven by significant withdrawals from institutional ETFs," highlighting January's $3 billion outflows from U.S. spot Bitcoin ETFs, which followed $2 billion and $7 billion outflows in December and November respectively.

Analysts remarked, "This persistent selling indicates traditional investors are losing interest, increasing overall pessimism about cryptocurrencies."