Bitcoin has experienced a 24% decline from its peak — what’s in store ahead? Analysts suggest that BTC is “very near its local bottom,” yet could unforeseen circumstances trigger an even steeper decline?
Market Pandemonium Affects Bitcoin
Bitcoin’s (BTC) value has been quite volatile. After reaching a record high of $109,114 in January when President Trump’s pro-cryptocurrency policies were taking shape, the market has undergone a significant downturn.
As of March 13, Bitcoin’s price rests around $82,600, reflecting a 24% drop from its January record, following a fall to a four-month low of $76,600 on March 11.
Numerous challenges are currently facing the market. Wall Street is adopting a cautious approach, concerns of a U.S. recession are on the rise, and new trade tariffs initiated by Trump have added more uncertainty.
Many investors have expressed disappointment in the lack of new BTC purchases as part of the Trump administration’s strategic reserve initiative, which some viewed as a potential stabilizing force for Bitcoin.
On the economic front, inflation data released on March 12 brought a brief wave of optimism. The consumer price index increased by just 0.2% in February, leading to an annual inflation rate of 2.8% — a reduction from January’s 0.5%. The core CPI, which excludes food and energy prices, also reached 3.1%, the lowest it has been since April 2021.
Initially, the market responded positively to the softer CPI figures. Bitcoin climbed above $84,000, and altcoins enjoyed double-digit increases. Both the S&P 500 and the Nasdaq 100 experienced slight gains as well.
However, this optimism was short-lived. As the day wore on, BTC and equities retraced most of their gains, hindered by the escalation of Trump’s tariff battle with key trading partners.
In a bold move, Trump imposed a 25% tariff on steel and aluminum imports from Canada, triggering a response from Canada that involved 25% tariffs on $21 billion worth of U.S. products.
Shortly thereafter, the EU retaliated with its own set of $28 billion tariffs on American products, resulting in exacerbated trade tensions.
Such developments have left investors feeling uneasy, making safer assets like cash, gold, and bonds more appealing compared to the volatility of Bitcoin.
With so many factors at play, Bitcoin stands at a critical junction. Will it find stability and mount another charge, or are further adjustments imminent? Let’s explore further.
Institutional Investment Withdraws
Since February 13, spot Bitcoin ETFs have faced mounting pressure, with significant outflows occurring. While there were a few days with slight inflows, these were negligible compared to the substantial outflows experienced most days.
The most significant hit came on February 25, with ETFs suffering their largest single-day outflow ever, exceeding $1 billion and signaling clear risk aversion among institutional investors.
Despite these outflows, as of March 12, BlackRock’s IBIT continues to dominate the ETF landscape, holding nearly 568,000 BTC. Fidelity’s FBTC and Grayscale’s GBTC follow, managing 197,500 BTC and 196,000 BTC respectively.
Adding a political element to Bitcoin’s narrative, at least six members of Trump’s cabinet possess Bitcoin, either directly or indirectly through ETFs.
Notably, Health and Human Services Secretary Robert F. Kennedy Jr. has the largest publicly disclosed stake, holding a Bitcoin Fidelity account valued between $1 million and $5 million.
Treasury Secretary Scott Bessent reports holdings between $250,001 and $500,000 in BlackRock’s iShares Bitcoin Trust ETF. Although Bessent has committed to divesting his holdings within 90 days, his position underscores the growing ties between Bitcoin and high-ranking U.S. officials.
Moreover, Bitcoin’s open interest, a key metric reflecting the total value of outstanding BTC derivative contracts, has been on a consistent decline.
After reaching a peak of $70 billion on January 22, following Bitcoin’s record high, open interest has steadily decreased, dropping to $45.7 billion on March 11, the same day BTC hit its four-month low.
However, in the past two days, open interest has begun to recover, adding over $1 billion as of March 13, aligning with Bitcoin’s price rebound.
The substantial ETF outflows and declining open interest reflect a period of institutional reluctance and diminished speculative activity in recent weeks.
January’s Bitcoin surge was driven by strong ETF inflows and high-leverage positions, but as uncertainties grew due to macro factors and Trump’s trade war, the market adopted a more defensive stance.
The recent rise in open interest could indicate that traders are tentatively re-entering long positions, though the rebound is gradual. A sustained increase in both open interest and ETF inflows will be crucial for Bitcoin to regain its momentum.
Historical Patterns Suggest a Recovery
Bitcoin’s recent downturn from its peak has been abrupt, but historical patterns and technical indicators imply this could be either a temporary dip or the onset of a deeper correction.
Technical analyst CryptoCon highlights that Bitcoin has returned to historically low Relative Strength Index (RSI) Bollinger Band % levels, a range in which BTC seldom lingers for long.
To elaborate, the Relative Strength Index measures market momentum, while Bollinger Bands indicate volatility. When the RSI Bollinger % hits extreme lows, it signals that Bitcoin is oversold, suggesting that downward pressure may be waning.
Historically, in previous cycles when BTC reached comparable RSI Bollinger % lows, it marked a solid local bottom prior to the next uptrend.
CryptoCon believes Bitcoin has just completed Phase 4, a part of the market cycle characterized by a price that surpasses the previous all-time high — seen in January 2013, December 2016, and November 2020.
In each of these cycles, Bitcoin underwent a correction post-breakout, then rallied to reach a new high within the following 9 to 12 months.
He suggests that this current cycle mirrors March 2017, where Bitcoin faced significant correction but subsequently bounced back to rally further. If this trend holds, we may still be several months away from a cycle peak.
However, this optimistic view is not universally accepted. Another analyst, Doctor Profit, outlines two potential outcomes for Bitcoin’s trajectory.
In a stable market setting, a local bottom for BTC should ideally form between $68,000 and $74,000, as indicated by the Market Value to Realized Value (MVRV) metric.
The MVRV indicator evaluates whether Bitcoin is currently overvalued or undervalued by comparing the existing market price to the average purchase price of all circulating BTC.
At the moment, the MVRV suggests that Bitcoin is nearing a strong bottom zone, indicating limited downside risks unless a significant event occurs.
This is where the potential for a Black Swan event enters the picture. Initially, Doctor Profit considered such an occurrence to be unlikely, but recent economic developments — including Trump’s aggressive tariff actions, worries about a global trade war, and overall recession fears — have made him less confident.
A serious global economic downturn, a financial crisis, or a significant collapse within the crypto industry could see Bitcoin plummeting even further, potentially reaching $50,000. While he still leans towards the initial scenario, he is no longer dismissive of the possibility of a major market crash.
The indicators are mixed. Bitcoin’s historical trends suggest this is a healthy retracement before another rally, yet the current global climate is more precarious than usual.
For now, investors are advised to remain vigilant, monitor critical support levels, and brace for increased volatility.
While historical patterns favor a recovery, it’s crucial to remember that markets are influenced by various factors, and external shocks can override even the strongest technical indicators. Always invest only what you can afford to lose.
Disclosure: This article does not serve as investment advice. The content and materials presented here are for informational and educational purposes only.