Why is the current drop in Bitcoin much more dangerous than the "2022 winter": there are no black swans, only "sell sell sell"

Over the past year, it was expected that the trend in the prices of cryptocurrencies such as Bitcoin would be very favorable. For example, the US Congress has been actively discussing new legislation in the cryptocurrency field to promote a more stable legal status for crypto assets. At the same time, the industry has avoided major bankruptcy scandals and forced liquidation events that have previously periodically toppled digital token prices. However, since reaching a historical peak price of over $126,000 for Bitcoin in October last year, this earliest cryptocurrency has lost about half of its value, falling to a low level not seen since September 2024. It is worth noting that the previous "crypto winter" had even more severe downturns, with the highest peak-to-trough drop reaching up to 80%. But for staunch believers in Bitcoin, this recent round of declines has been particularly painful, as the downturn is not driven by a sudden sell-off, but rather by a consistent and steady loss of interest from investors in cryptocurrency assets. This current decline in cryptocurrency prices is different from the past "event-driven winters" triggered by the bankruptcy of cryptocurrency exchanges, extreme leveraged liquidations, or project fraud. It is more akin to a slow and profound decline in demand: Bitcoin has fallen significantly from its high of over $126,000 in October last year, currently at around $63,200; Ethereum is around $1,625, showing even weaker performance, reflecting not only the withdrawal of funds from "digital gold," but also a reduction in overall allocation to smart contract ecosystems and high-volatility crypto betas. Outflows from ETFs, rising real interest rates, regulatory delays, enterprise hoarding de-leveraging, and risk capital shifting towards AI leaders all indicate that the core problem facing the crypto market is no longer short-term liquidity shocks, but rather a lack of marginal buyers and declining narrative returns: Bitcoin has failed to stabilize its safe-haven function in the face of war and inflation shocks, while cryptocurrencies like Ethereum lack independent cash flow anchors sufficient to offset macroeconomic tightening. Therefore, even without a new "Lehman moment," the market may still undergo a more prolonged valuation correction and ongoing liquidation amidst low trading volumes, weak rebounds, and continuous redemptions. The following are some key factors that continue to play a significant role in driving institutional selling in this round of steep sell-offs: Just another asset class? "Digital gold" losing its shine: Bitcoin turns into a zero-interest risk asset in the high-yield era Bitcoin was initially touted as an alternative to traditional payment ecosystems controlled by banks and governments. However, using this technology for transactions proved to be slow and costly, and its price volatility was too extreme to be an attractive currency substitute. Supporters later promoted it as a useful store of value, capable of helping investors diversify portfolios and hedge against inflation. Bitcoin rebounded from the previous cryptocurrency winter in 2022, partly due to a large influx of traditional financial institutions into Bitcoin exchange-traded funds (ETFs) these publicly traded investment instruments use Bitcoin as the underlying asset. As a result, portfolio managers' dispassionate investment decisions have become a key factor in determining demand for Bitcoin. Many investors have accepted the viewpoint that Bitcoin can retain value during economic and political crises because, unlike traditional currencies, it is not tightly controlled by the global central banking system, so monetary authorities cannot depreciate it through inflation. Some supporters refer to it as "digital gold," likening it to gold, which is typically seen as a safe investment during geopolitical turmoil or periods of intense market sell-offs. However, for a new batch of institutional holders focusing on Bitcoin investment strategies, this cryptocurrency did not live up to its advertised role as an effective safe-haven asset during the price surge caused by the Iran war. As market rate expectations rise along with oil prices and broad inflation, the attractiveness of Bitcoin, which pays no interest to holders, declines. On the contrary, Bitcoin has been openly traded like other high-risk assets, competing for funds with increasingly popular low-volatility financial products aimed at high-net-worth individuals, such as perpetual futures contracts, as well as popular event-based bets made by investors on prediction markets like Polymarket and Kalshi. In addition, venture capital funds in Silicon Valley are also flowing into large tech companies benefiting from the artificial intelligence boom. "My coins never sell" myth shattered: Strategy lets go, corporate coin hoarding flywheel backfires Strategy's long-term strategy relies on a positive feedback loop of "issuing stocks or high-yield securities buying Bitcoin asset appreciation maintaining valuation premiums continued financing." However, when the company's valuation falls near, or even below, the net value of the held Bitcoin, financing capacity and dividend burdens will squeeze the balance sheet in the opposite direction. The company sold Bitcoin for the first time since 2022, and then further authorized an expanded sale of coins, indicating that the corporate cryptocurrency asset reserve model has shifted from unilateral accumulation to liquidity management; this not only weakens the most important faith anchor in the market but also exposes a mismatch in terms and cash flow between underlying zero-yield assets and high-dividend financial instruments. Bitcoin investors often closely monitor the position adjustment actions of other institutional investors who also focus on Bitcoin assets. In early June, the largest corporate-type Bitcoin buyer, Strategy company (formerly Microstrategy), announced that it had sold 32 Bitcoins worth $2.5 million. This was the company's first sale of Bitcoin since December 2022, during the previous crypto winter. The market reacted swiftly. By the end of that week, the price of Bitcoin had dropped by more than $10,000 and fell below $60,000 for the first time in two years. Strategy entered the cryptocurrency market in 2020 when the company's helmsman and founder, Michael Saylor, transformed his software company into a Bitcoin proxy investment tool. The company has accumulated a position of over 4% of the total circulating supply of nearly 20 million Bitcoins. Over the years, Saylor has preached an idea that Strategy will never sell its Bitcoin holdings and instead will continue to expand its position. Last year, the company launched preferred shares that pay high dividends. Some investors questioned the sustainability of a tech-type company that needs to pay high dividends when the underlying asset itself yields zero returns. Strategy's market value once traded at a significant premium to the value of its Bitcoin holdings. Now, as its business model comes under pressure, this valuation is closer to parity. Regulatory dawn turns into political fog: "Clarity Act" struggles to deliver institutional dividends After Donald Trump returned to the White House last year, there were high hopes in the market that under this president, who is very pro-cryptocurrency, new legislation could establish clearer rules for the cryptocurrency industry. However, discussions around the Digital Asset Market Clarity Act have been dragging on for so long that it has become increasingly uncertain whether the bill will ultimately pass. The market had initially anticipated that the Digital Asset Market Clarity Act would clarify the jurisdictional boundaries between the US Commodity Futures Trading Commission and the Securities and Exchange Commission and further establish a framework for stablecoin regulation under the GENIUS Act. However, issues such as stablecoin interest payments, decentralized finance, anti-money laundering responsibilities, and conflicts of interest among government officials holding cryptocurrency assets have led to prolonged negotiations in the Senate. While the bill has made it onto the Senate legislative agenda, it still needs to cross the 60-vote threshold, reconcile with the Agricultural Committee version, and merge with the House text, turning regulatory dividends from a deterministic catalyst into options that are continually postponed. This bill was originally planned to build on the GENIUS Act from last year. The latter established regulatory rules for stablecoins cryptocurrencies that maintain a stable value pegged to a fiat currency for issuance and use. The Clarity Act was aimed at other broadly defined cryptocurrencies and would ultimately clarify the regulatory jurisdiction of tokens such as Bitcoin. The Clarity Act would designate the formal regulatory authority of cryptocurrencies to the US Commodity Futures Trading Commission and the US Securities and Exchange Commission based on whether a token is deemed a commodity or a specific security asset. The banking industry strongly opposes any measures allowing stablecoins to pay interest. Democratic lawmakers generally are not keen to approve legislation that could boost cryptocurrency demand and potentially further enrich Trump and other officials holding large amounts of cryptocurrency. Trump recently disclosed that he made $1.4 billion in revenue from cryptocurrency-related businesses last year, which has inevitably led to increased divisions between the two parties regarding the Clarity Act. Some lawmakers are also cautious about providing legal protection to cryptocurrencies because they are often used in criminal activities and money laundering. One of the most controversial parts of the bill is section 604, which will protect blockchain developers and seasoned traders in legal disputes, preventing them from being classified as money transmitters. Law enforcement organizations, including the National Association of Attorneys General, warned in a public letter to Patrick J. Vitt, executive director of the US President's Digital Asset Advisory Council, on June 23 that this provision could create a safe harbor for potential large-scale criminal transactions.