Bitcoin: The Uncovered Reasons Behind Its Recent Plunge

Bitcoin: The recent drop of Bitcoin below $65,000 caught everyone off guard, with the reasons behind it being quite murky. Pinpointing the exact cause is complex, but we may have found some answers.

Recently, cryptocurrency hedge funds have significantly reduced their involvement with Bitcoin. Over the last 20 trading days, their exposure to the BTC market has dropped to just 0.37, the lowest level since October 2020. Charts highlight Bitcoin’s price trend from 2019 to 2024, emphasizing major peaks and valleys.

The decline in hedge fund exposure to Bitcoin is a crucial factor in the recent sharp decrease in its value. The lower chart illustrates the rolling one-month beta of global crypto hedge funds to Bitcoin, indicating how much hedge fund performance is influenced by Bitcoin’s price changes.

A hedge fund’s performance mirrors Bitcoin if its beta value is one, while a beta below one indicates lower exposure. The drop to a beta of 0.37 suggests hedge funds are much less affected by Bitcoin’s price fluctuations than they were a few years ago.

Hedge fund exposure was last this low in October 2020, just before Bitcoin experienced a significant bull run. Hedge funds are known for their strategic actions and often have access to advanced data and industry insights. Their withdrawal from Bitcoin could indicate expectations of further declines or volatility.

This cautious approach could be due to various factors, including changing internal investment strategies, macroeconomic conditions, or regulatory uncertainties. Reduced exposure likely led to increased selling pressure, driving its price below the critical $65,000 mark.

Given their substantial control over capital, hedge funds exert significant influence on the market. Market sentiment and price movements heavily impact fund flows.