Bitcoin Plummets Below $85,000 Amid Economic Concerns

Bitcoin (BTC) has dropped below $85,000 for the first time since April 2023, with a decline attributed to three main factors: uncertainty surrounding potential interest rate cuts by the US Federal Reserve, increased selling pressure from digital asset treasuries (DATs), and concerns regarding Strategy’s potential removal from major stock indices. The cryptocurrency has faced significant selling pressure, plunging over 20% in November alone, reflecting a broader risk-off sentiment among investors.

The recent decline intensified following the release of delayed US jobs data for September, which indicated stronger-than-expected employment figures. This data reinforced speculation that the Federal Reserve may pause its rate-easing measures during its December meeting, negatively impacting investor confidence in risk assets, including Bitcoin. On Thursday, outflows from US spot Bitcoin exchange-traded funds amounted to approximately $903 million, with BlackRock’s IBIT leading the losses at $355 million.

Pressure from Digital Asset Treasuries

The selling by DATs has significantly contributed to Bitcoin’s downward trend. These institutions have been liquidating their Bitcoin holdings to fund share buybacks, as many of their stock prices have fallen below their net asset values. This forced selling has exacerbated the downward pressure on Bitcoin prices.

Moreover, some institutional investors who previously took long positions in Bitcoin may now be unwinding their bets after recording substantial gains earlier in the year. Notably, short trader Jim Chanos has been active in this space, further influencing market dynamics. Analysts from K33 noted that these actions have collectively put additional stress on Bitcoin’s value.

Compounding these issues is the uncertainty surrounding Strategy, which is facing the possibility of removal from the MSCI USA Index and other significant equity benchmarks due to new proposed rules by MSCI. Analysts from JPMorgan estimate that Strategy could experience outflows of as much as $8.8 billion if it is delisted from these indices.

Market Response and Future Outlook

On October 10, MSCI began reviewing proposals to remove companies from its indices whose digital asset holdings comprise 50% or more of their total assets. Strategy, with a Bitcoin-heavy balance sheet, exceeds this threshold significantly. The same day saw a major liquidation event in the crypto market, resulting in $19 billion in liquidations.

In response to concerns about its classification, Strategy CEO Michael Saylor defended the company’s operational model in a recent post on social media. He emphasized that Strategy operates as a publicly traded software firm with around $500 million in annual revenue, rather than merely a fund or trust. Saylor described the firm as a “Bitcoin-backed structured finance company” capable of innovating within both capital markets and enterprise software.

Despite Saylor’s reassurances, Bitcoin’s current valuation is approximately $10,000 below Strategy’s average cost basis of $74,000 for its Bitcoin holdings. Research head at Bitwise Europe, André Dragosch, suggested that Bitcoin may find a bottom between Strategy’s average purchase price and the average cost basis of $84,000 for BlackRock’s IBIT.

As the market grapples with these challenges, investors remain cautious. The combination of macroeconomic pressures, institutional selling, and regulatory uncertainty continues to shape Bitcoin’s trajectory, leaving many to wonder how the leading cryptocurrency will respond in the coming weeks.