Cryptocurrency markets have recently weakened after October saw the largest liquidation of digital tokens in history following US threats to impose triple-digit tariffs on China and tighten software export controls.
On October 10, concerns about the implications of these statements led to more than $19 billion in liquidations across leveraged financial centers in the cryptocurrency sector.
Analysts noted that it was the largest 24-hour wipe in the cryptocurrency market's history, nine times the size of the February wipe and 19 times larger than another wipe in 2020.
Bitcoin, the world's largest cryptocurrency, subsequently fell to record its first monthly loss since 2018 in October, even as stock indices rose thanks to enthusiasm over artificial intelligence applications.
That enthusiasm for artificial intelligence waned somewhat last week as investors worried about the sustainability of the high valuations in the technology sector, and the reduced appetite for risk did not help boost Bitcoin.
On Wednesday, Bitcoin temporarily fell below the coveted $100,000 level, at one point dropping to its lowest point since mid-June. Bitcoin also entered a bear market, having fallen more than 20% from its record high of $126,186 in early October.
Analytics firm CoinGlass also revealed that over $1.27 billion in leveraged cryptocurrency positions were wiped out earlier this week. The majority of these liquidations were long positions, as traders who had bet on further price gains in Bitcoin were impacted by the currency's losses.
In a note to clients, Citi analysts added that the data showed a gradual decline in Bitcoin whales, or large holders of the cryptocurrency, while smaller retail wallets grew.
Some long-term holders may have become sellers. Declining funding rates may also indicate reduced demand for leverage, said Citi analysts including Alex Saunders and Nathaniel Roberts.
Technically, things aren't much brighter, with Bitcoin now trading below its 200-day moving average, which is also likely to curb demand. We still believe we're at the beginning of an adoption cycle for financial advisors and other investors, but spot ETF flows will be the key to watch for any shift in sentiment, they added.
