Last night, Bitcoin suddenly plummeted, hitting a low of $77,153, with a daily drop of over 6%.
After opening, US Dow futures also plummeted by over 1,500 points, leading to panic selling in the market.
This time, Bitcoin mainly followed the decline of US stocks.
There haven’t been any significant negative news over the weekend, and Bitcoin's trading volume is also low, which doesn’t seem like institutional dumping, but rather a short-term risk-averse behavior.
Timing-wise, this drop coincides with the main trading hours in Europe and the US, possibly related to concerns that Europe might introduce retaliatory tariffs on Monday, prompting investors to exit preemptively.
From Bitcoin's on-chain data, large holders have not shown large-scale outflows for now; the coins sold are more likely those stored in exchanges, possibly from retail or short-term investors.
The fear and greed index has dropped to 17, indicating that the market is in a state of extreme fear.
Why does Bitcoin follow the decline of US stocks?
In simple terms, both Bitcoin and US stocks are high-risk assets.
When market sentiment is poor, such as when people are concerned about economic problems, investors will first sell off these high-risk items for cash or safer assets (like gold or government bonds).
It’s like when you don’t have enough money, you first sell off the luxury items you rarely use, keeping cash available for emergencies.
I shared during the live stream on Saturday that based on historical experience, Bitcoin may not immediately drop when US stocks fall significantly, but it could catch up with the decline in a few days.
Why? Because when US stocks drop to cheap levels, large funds (like institutional investors) will sell Bitcoin to buy the stocks of quality companies in the US stock market.
For example, during the '312 Crash' on March 12, 2020, US stocks experienced a direct 'circuit breaker' (a significant drop leading to trading suspension), liquidity vanished from the market, and large holders sold Bitcoin for cash to cover margin calls.
The current situation is somewhat reminiscent of that time, so it’s not surprising that Bitcoin is falling along with US stocks.
What’s happening in the US now? Why is the market so panicked?
Recently, there has been some unrest in the US. People are taking to the streets in New York, Los Angeles, and Washington, D.C., and the scale is growing, possibly leading to strikes.
Why? Because prices in the US are ridiculously high, inflation is rising, and people can barely afford items at the supermarket. Coupled with the crash of US stocks, the public is worried that banks may run out of money, making life difficult, which has led to protests.
What’s more troubling is that the default rate on credit card repayments in the US has hit a new high, with many people unable to pay their debts. Inflation is also straining some small and medium-sized banks.
The US version of the prediction platform Kalshi shows that the probability of a US economic recession in 2025 has risen to 65%.
In this case, high-risk assets like Bitcoin and US stocks have become condiments rather than necessities of life, so people prefer to stock up on rice, flour, and oil first, leading to the selling of risk assets.
Will it continue to drop? What should we focus on?
You can focus on the market trends after the US stock market opens tonight to see if there will be further declines, possibly triggering a 'circuit breaker'. This will directly affect Bitcoin's trend.
Additionally, regarding Bitcoin spot ETF data, if there is continued 'net outflow' (more selling than buying), it indicates that funds are moving to US stocks.
According to the latest data, Bitcoin spot ETF indeed saw net outflows in the last two days. If this trend continues, Bitcoin may drop again.
Finally, there's market sentiment. If the US economy continues to deteriorate (such as worsening inflation or banking issues), and the market remains in panic, people may continue to sell high-risk assets, putting considerable pressure on US stocks and Bitcoin in the short term.
If you want to buy the dip, don’t rush. Don't exhaust all your bullets at once; at least keep 10% of your position to guard against extreme black swan events in the market.
