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Bitcoin falls to multi-month low as risk aversion intensifies
Bitcoin (BTC) fell to $78,000 on Monday, its lowest point in multiple months and down 27% from its all-time high of $107,000 reached in January. The combined market capitalization of cryptocurrencies and stock markets has shrunk significantly in recent months, with losses exceeding $6 trillion.
The selling pressure in the market mainly comes from the increasing correlation between assets and the shift of investor sentiment towards risk-averse strategies.
Cryptocurrency markets suffered a sharp drop on Monday, with market capitalization shrinking to $2.67 trillion, the lowest level since November 9 last year. Intensified selling pressure over the past three months has slashed the crypto asset’s market capitalization by $1.2 trillion from its Dec. 17 peak.
Bitcoin's decline reflects the market's aversion to risky assets. As investors' risk aversion increased, the Fear and Greed Index fell to a two-year low of 14, indicating that market sentiment has turned to extreme risk aversion.
At the same time, the stock market is showing a similar trend. The S&P 500 plunged more than $1.4 trillion on Monday, its biggest one-day drop since 2022. The combined market capitalization of cryptocurrencies and stocks has lost nearly $6 trillion since January.
The fundamental reason for the market decline is the drastic change in investors' risk appetite. As the Kobeissi Letter points out, market sentiment shifted from extreme greed to extreme fear in just a few days, causing the market to fluctuate in completely opposite directions.
This trend also shows an increasing correlation between cryptocurrencies and the stock market, especially under the influence of the Trump administration's tariff policies, the crypto market has become more sensitive to these policies. For example, the recent creation of a strategic reserve of Bitcoin has instead become a “sell message” for the market, failing to counteract downward pressure on the stock market.
QCP analysts mentioned in a report to investors that we may see a continued increase in the correlation between crypto assets and the stock market until the cryptocurrency market finds a new market narrative.
However, Stabolut CEO Eneko Knorr pointed out that as a top digital asset, Bitcoin still has the potential to break through difficulties and take an independent path when the traditional market enters a long-term bear market. He emphasized that the short-term correlation between Bitcoin and the stock market is nothing more than a response to fluctuations in market sentiment, and in the long run, Bitcoin's development story will be completely different.
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