Bitcoin '50% plunge' nightmare… Investors fleeing in fear

Why is this Bitcoin decline lasting so long?…"Halving cycle theory"

Pattern after 2017: 'Soars right after the 4-year halving, then plunges a year later'

"It could test the low $70,000s"

Some suggest "using it as a dollar-cost averaging opportunity"

Just a month ago, Bitcoin, which had broken through $126,000, has fallen more than 20% in a month. About $600 billion (about 877 trillion won) of market capitalization has evaporated.

Bitcoin fell to $93,714 on the 16th local U.S. time. It had recorded $126,251 on October 6. In the Asian market on the 17th, Bitcoin at least rose back above $95,000 and narrowed its decline.

The environment that it has been incorporated into mainstream portfolios through exchange-traded funds (ETFs) and the support of former U.S. President Trump's family has not changed significantly. However, capital flows have stalled, and long-term "whale" investors known to hold more than 1,000 bitcoins reportedly cashed out a large portion.

Shares of bitcoin investment companies like Strategy (formerly MicroStrategy) have now fallen to levels close to the value of their bitcoin holdings. This means they no longer recognize a premium for bitcoin.

Jake Keness, an analyst at crypto data firm Nansen, said, "This sell-off is the result of hedge funds taking profits, institutional outflows, macroeconomic uncertainty, and the collapse of leveraged long positions all coming together."

Digital asset industry experts find the biggest background to this decline in explanations of the halving cycle.

The halving is a phenomenon in which Bitcoin's supply is halved roughly every four years. Historically, speculative booms occur before a halving and past cycles have shown another pattern where a crash follows about one to one-and-a-half years later.

During the 2017 halving, Bitcoin also surged more than 13,000% and captured public attention. The following year it plunged around 75%, and the cycle of boom and bust repeated relentlessly.

According to Bloomberg, in the last cycle, miners operating powerful computers supporting the network often concentrated their selling during the roughly one-year price rise after the halving.

In this cycle, the halving occurred in April 2024 and the peak came about one and a half years later in October this year. However, Bloomberg pointed out that it is no longer clear whether this scenario still applies in a situation where well-capitalized buyers are shaping the market.

Matthew Hougan, chief investment officer (CIO) of Bitwise Asset Management, said, "People are afraid the four-year cycle will repeat." He explained, "People who do not want to experience another 50% drop are exiting the market ahead of it."

According to CNBC, industry experts expected a two-step decline: an initial sell-off driven by macroeconomic factors and a subsequent sharp drop caused by forced liquidations.

Alessio Quaglini, CEO of digital asset solutions firm Hex Trust, said the turning point came with Bitcoin's liquidation event on October 10. Tens of billions of dollars of leveraged positions disappeared in the full liquidation. He explained, "This is not a loss of confidence in Bitcoin but a liquidity reset." For this reason, it is struggling to rebuild a foundation.

Peter Jung, head of research at Presto Research, pointed out, "After the October 10 crash, liquidity is lacking and the fear that the four-year bull cycle is over is the main culprit."

Macroeconomic headwinds have also intensified the pressure. Expectations of a December U.S. Federal Reserve rate cut have disappeared, and a prolonged U.S. government shutdown has dampened investor sentiment.

Tim Sun, lead researcher at digital asset financial services firm HashKey, said tightening policy hit ETFs particularly hard. He said, "Bitcoin ETFs attracted more than $100 billion in funds immediately after approval, but institutional inflows have slowed significantly due to macro liquidity tightening."

Some long-term investors still view Bitcoin as a hedge against currency depreciation, inflation, and long-term monetary expansion.

Among industry experts interviewed by CNBC, few expect this downturn to reverse soon. Nevertheless, they emphasized that this crisis is very different from past crises.

Quaglini said, "This adjustment may not end anytime soon and could test the low $70,000s, or perhaps temporarily fall lower." Still, he emphasized, "Unlike 2022, there is no credit contagion, cascading defaults, or systemic failure." He predicted, "Once the situation stabilizes, Bitcoin will set new highs over the next 12 to 18 months."

Peter Jung advised individual investors to adopt a systematic investment plan such as dollar-cost averaging rather than trying to time the market. He also suggested focusing on understanding the fundamentals of the Bitcoin and Ethereum networks rather than headline-driven trading based on news or information.

Tim Sun of HashKey, interviewed by CNBC, added that long-term buyers should wait for macro signals rather than technical ones. He said Bitcoin's rally depends on global liquidity easing to a sustainable level.

Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said that with gold and equities near record highs, Bitcoin is "the tip of the iceberg of melting risk assets." He forecasted, "Most cryptocurrencies, including Bitcoin, will continue to decline for the time being."

Guest reporter Jeong-A Kim kja@hankyung.com