Amid soaring enthusiasm following Donald Trump's election victory, a surge of new investors quickly bought into bitcoin at inflated prices. However, just six weeks after Trump's inauguration, bitcoin plunged into a bear market due to a global stock sell-off. The cryptocurrency, once reaching a peak of six figures, now trades around $80,000, nearly a quarter below its January pinnacle.
The influx of investors, many of them leveraging borrowed money, is experiencing the repercussions of bitcoin's decline. Approximately 20 million new bitcoin addresses have been generated in the last three months, accounting for about 1.5% of all existing addresses. As the spent output profit ratio drops to its lowest level in over a year, with some estimates showing negative values, recent buyers are facing significant losses, making it a tough time for new investors.
Despite hitting a record high in January, concerns about U.S. tariff policies, economic health, and tech selloffs have eroded most of bitcoin's gains post the American election. Analysts, like Kevin Dede from H.C. Wainwright, express surprise at the ongoing drop in bitcoin's value.
The corrective selloff has been unsettling, catching many off guard, according to John Glover, chief investment officer of Ledn. Leveraged traders are particularly affected, registering daily losses exceeding $800 million. Investment products related to digital assets have seen outflows for the fourth consecutive week, with total assets under management dropping to $142 billion, their lowest since mid-November 2024 post-U.S. election.
Bitcoin ETFs in the U.S. witnessed significant outflows lately, with J.P. Morgan reporting the largest daily outflow since their initiation in January last year. While previous crypto market downturns have been followed by stability, bitcoin's future seems intertwined with broader market trends.
Market expectations show increased volatility in bitcoin and ether derivative prices, with investors anticipating more turbulence ahead. Jeff Dorman, chief investment officer at Arca, believes the recent market upheaval is akin to past short-term setbacks paving the way for future highs.