Bitcoin fell below $60,000 last Friday, marking its worst weekly performance since the collapse of Sam Bankman-Fried's FTX exchange in 2022.

In contrast, the current forces supporting the market appear relatively mild, yet they have already raised alarms among analysts. They warn that Bitcoin's modest rebound could be short-lived as structural weaknesses become exposed.

Investors are fleeing Bitcoin exchange-traded funds, technical indicators are weakening, and interest rate expectations have shifted. While the current crypto winter seems less severe than previous ones, it might indicate that the worst is yet to come.

"I think there is room for further downside," said Griffin Ardern, co-founder of the diversified asset management firm Primal Fund. "We are some way off the true bottom."

Bitcoin recovered slightly after plunging 16% over the seven days through Sunday, its largest weekly drop since the 23% crash in November 2022 triggered by FTX's bankruptcy. That year was a memorable one for cryptocurrencies, beginning with the collapse of the stablecoin TerraUSD, which erased $40 billion in market value and sparked a series of corporate failures.

Bitcoin's drop below $60,000, hitting its lowest level since October 2024, represents a decline of over 50% from its all-time high above $126,000 reached last year. As of 08:40 Singapore time on Wednesday, Bitcoin was down 1%, trading around $61,500.

Last week's sell-off was partly attributed to a small divestment by Michael Saylor's company, Strategy Inc., which purchases Bitcoin, breaking its previous stance of never selling.

Strategy attempted to calm market nerves on Monday, stating it had spent approximately $101 million to acquire 1,550 Bitcoins, far exceeding the $2.5 million it had sold. However, restoring market confidence may not be easy.

Technical signals are deteriorating. Bitcoin fell below its 200-week moving average last week, a key indicator closely watched by many traders and often used as a measure of market support. Breaking below this level could heighten market caution, as it suggests a rally might turn into a sell-off rather than a chase for gains.

Ardern noted that at a true capitulation bottom, long-dated options typically show a more bullish skew, which is not currently happening.

Investors have begun to hesitate. With net outflows for 13 consecutive trading days, they have withdrawn approximately $5.5 billion from US-listed spot Bitcoin ETFs.

Paul Howard, a senior executive at crypto trading firm Wincent, described the current decline as a "hidden bear market" because a major crash like FTX's has not yet occurred.

"Breaking the 200-week moving average strongly confirms the market may have entered a bearish phase," Howard said, adding that given Bitcoin's persistently high volatility, "this rally is unlikely to last."

Interest Rate Expectations

Shifting interest rate expectations are part of the problem, as the prospect of higher borrowing costs tends to draw capital away from speculative assets like cryptocurrencies.

The unresolved conflict between the US and Iran, coupled with strong US employment data, has shifted market expectations from Federal Reserve rate cuts to potential hikes.

"Expectations have done a complete 180," said Rajiv Sawhney, Head of International Portfolio Management at Wave Digital Assets.

Sawhney noted that Bitcoin has also lost its positive correlation with US stocks as capital shifts from crypto to AI and tech companies. He expects that even if the stock market reverses, capital will not flow back into cryptocurrencies.

The current correction is still milder than previous crypto winters. Bitcoin is down about 50% from its peak, whereas previous bear markets saw declines of around 80%. After peaking in 2021, Bitcoin took over a year to bottom out and another 15 months to reclaim its previous peak.

It is precisely this history that makes some traders reluctant to call a bottom now.

Hayden Hughes, Managing Partner at Tokenize Capital, stated that digital asset managers like Strategy introduce a "unique risk" to the crypto industry. These firms hold large amounts of cryptocurrency and could be forced to sell if funding conditions tighten or their stock prices fall.

Hughes added that the stock market may face systemic risks in the coming months, which could spill over into the cryptocurrency space.