Bitcoin has taken a serious hit, dropping below $84,000 for the first time since November 11th, per data from CoinGecko, as the OG crypto’s once-unstoppable rally post-election has come to a screeching halt.
The market is reacting to US President Donald Trump’s new trade war with the EU. For the last several weeks, Bitcoin had been riding high on the so-called “Trump bump.”
The open interest in put options is now showing strong interest at the $70,000 strike price, an indicator of heightened concern among investors. According to data from the largest crypto options exchange, Deribit, the open interest for these $70,000 puts is the second-highest among all contracts set to expire on February 28, and $4.9 billion in open interest is riding on this expiration.
ETFs are losing their touch
But still, other major tokens, like Ether and Solana, have been hit even harder, down between 5% and 8%. Data compiled by Coinglass shows that approximately $2 billion worth of bullish bets have been wiped out over the past three days. Bitcoin perpetual futures have seen a sharp drop in long positions during this period.
Another reason for the recent price decline appears to be the fading demand for Bitcoin exchange-traded funds (ETFs) as outflows hit over $1 billion in just one day on Tuesday. This is the largest outflow since these funds debuted in January of the previous year.
Ethereum also felt some of the pressure, with its own ETFs seeing $130 million in outflows. Global markets are also feeling the heat, as fears about a potential recession are mounting.
In fact, the S&P 500, which had posted a 60+ point gain earlier in the day, reversed sharply and went negative, per data from the S&P Global. A massive $500 billion drop in market cap happened in just an hour, as traders reevaluated their positions.
The 10-year Treasury yield passed below that of the 3-month note in trading Wednesday. In market lingo, that’s known as an “inverted yield curve,” and it’s had a sterling prediction record over a 12- to 18-month timeframe for downturns going back decades.
But that gap has now nearly disappeared, which significantly increases the odds of a recession. The Federal Reserve’s decision to cut short-term rates in response to a potential slowdown is expected to be a critical factor moving forward.
While this inversion is a concerning sign, it’s not an absolute guarantee of recession. The last inversion in October 2022 didn’t result in a recession for nearly 2.5 years, so there’s no certainty here.
And while all of this is happening, consumer sentiment surveys are reflecting growing anxiety over the economic outlook. In the University of Michigan’s latest survey, respondents reported the highest long-term inflation expectations since 1995. Also, the Conference Board’s forward-looking expectations index plunged to levels consistent with a recession in February.
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