Bitcoin Plummets Below $85,000 Amid Economic Uncertainty

Bitcoin’s price has dropped below $85,000 for the first time since April, driven by three primary factors: uncertainty regarding a potential interest rate cut by the US Federal Reserve, increased selling activity from digital asset treasuries, and concerns surrounding the potential removal of Strategy from the MSCI indices. As of Friday, the cryptocurrency has experienced a decline of over 20% in November alone, reflecting a broader risk-off sentiment in financial markets.

The decline intensified following the release of the US jobs data for September, which reinforced speculation that the Federal Reserve may delay any rate cuts during its upcoming December meeting. This uncertainty has weakened investor confidence in risk assets, leading to significant outflows from US spot Bitcoin exchange-traded funds (ETFs). On Thursday, these outflows reached a staggering $903 million, with BlackRock’s IBIT ETF alone experiencing a reduction of $355 million.

Market Dynamics and Institutional Selling

The downward pressure on Bitcoin is also attributed to selling from digital asset treasuries (DATs). Many of these treasuries have been divesting their Bitcoin holdings to conduct share buybacks, as their share prices have fallen below net asset value. Some institutional investors, who previously adopted long positions in Bitcoin, are now unwinding their investments after substantial gains earlier in the year. This shift has contributed to the downward trend of the cryptocurrency.

JPMorgan analysts have highlighted the potential impact of Strategy’s situation on the market. The company faces the possibility of being removed from the MSCI USA Index, which could trigger outflows estimated at $8.8 billion. MSCI’s review of its indices includes proposals to exclude firms with digital asset holdings exceeding 50% of their total assets. Given Strategy’s significant Bitcoin investment, this rule change poses a serious threat to its market position.

In response to the looming uncertainty, Strategy’s CEO, Michael Saylor, defended the company’s classification in a recent post on social media platform X. He argued that Strategy operates as a publicly traded software firm, generating approximately $500 million in annual revenue, and should not be categorized with funds or trusts that primarily hold investments. Saylor characterized the firm as a “Bitcoin-backed structured finance company,” emphasizing its active management of products.

Future Outlook for Bitcoin

Despite Saylor’s assertions, Bitcoin is currently trading around $10,000 below Strategy’s average cost basis of $74,000. Analysts, including André Dragosch, head of research at Bitwise Europe, have suggested that Bitcoin could find a bottom within the range of Strategy’s average purchase price and the $84,000 average cost basis for BlackRock’s IBIT ETF.

As market dynamics continue to shift, Bitcoin’s future remains uncertain. The cryptocurrency’s ability to recover will depend significantly on macroeconomic conditions, investor sentiment, and the evolving landscape of institutional investment. With the Federal Reserve’s decisions closely watched by market participants, the upcoming weeks will be critical in determining the trajectory of Bitcoin and the broader cryptocurrency market.