The cryptocurrency market extended its decline on Thursday, continuing a downward trend that has persisted for over a month. This coincided with U.S. stocks relinquishing their early gains driven by Nvidia's (NVDA.US) earnings report, reflecting a broader weakening in risk appetite that further pressured crypto assets.

Bitcoin (BTC) tumbled more than 4% intraday, dropping below $87,000 for the first time since April as buying momentum waned, erasing much of the rally seen earlier this year. The pullback follows sustained unwinding of positions after October's sharp gains, with fast-money traders exiting and overleveraged holdings making the market vulnerable to sudden sell-offs and volatility.

James Butterfill, Head of Research at CoinShares, noted, "Cryptocurrencies are facing heavy selling from whales adhering to the 'four-year cycle' theory, which typically marks a period of cyclical price declines. While we fundamentally disagree with this narrative, the behavior has become self-reinforcing, with large holders offloading over $20 billion in holdings since September."

Meanwhile, U.S. stocks also saw renewed volatility amid concerns over AI-sector valuations and fading expectations for a Federal Reserve rate cut in December. Nvidia's earnings briefly reignited AI optimism, but the rally quickly fizzled. In contrast, cryptocurrencies remain entrenched in their own deleveraging cycle, with retail demand drying up—a "cross-asset divergence" that has grown more pronounced since early October.

Options markets are eyeing key downside levels. Data from Deribit, a subsidiary of Coinbase (COIN.US), shows the strongest demand for downside protection near $85,000, followed by $82,000, indicating traders are bracing for further declines. Analysts noted, "The crypto selloff has stripped away the market’s primary speculative outlet. In the current environment, digital assets are no longer the 'canary in the coal mine'—they are the collapsing mine itself, buckling under their own leverage."

Bitcoin’s latest drop is closely tied to October’s massive liquidation wave, where over $19 billion in leveraged positions were wiped out in a single day. This severely damaged market momentum and drained liquidity from major trading platforms. Order book depth remains impaired, leaving prices hypersensitive to minor trading flows—a fragility that continues to amplify each downward move.

Macroeconomic uncertainty has further dampened sentiment. Jake Ostrovskis, OTC Trading Lead at Wintermute, observed, "With key economic data sparse, the Fed’s policy path remains unclear. This uncertainty is suppressing risk appetite more than any other factor, particularly for high-risk assets."