"Bitcoin plunge lays bare the crypto market’s true face"

The virtual-asset (cryptocurrency) market has been gripped by a “wash trade” shock. The trigger was a sharp deterioration in risk appetite across global capital markets as Kevin Warsh, former governor of the U.S. Federal Reserve (Fed), emerged as a candidate for the next Fed chair. In particular, as Bitcoin (BTC), the bellwether of the crypto market, slid back toward the $70,000 level, critics say the market’s structural limitations have been exposed.

On the 2nd (Korea time), crypto-focused outlet CoinDesk reported that most of the 16 major virtual-asset indices it tracks have fallen 15–19% from the start of the year. The outlet noted that “while the crypto market has recently been portrayed as an asset class with various attractions—such as integration into the regulated financial system and greater institutional participation—once Bitcoin plunged, most virtual assets fell in tandem, failing to demonstrate a meaningful diversification effect.”

As of 4 p.m. that day, Bitcoin was down 2.05% day-on-day at $76,480. That represents a drop of about 15% from the beginning of the year. The move is seen as reflecting a broad pullback in risk sentiment, as former governor Warsh—recently named as a candidate for the next Fed chair—is viewed as less dovish, reviving concerns that monetary tightening could remain in place for longer.

Altcoins were hit even harder. At the same time, Ethereum (ETH) fell 7.09% from the previous day, while XRP (XRP), Solana (SOL) and Binance Coin (BNB) also posted steep declines.

Even projects generating real revenue fell across the board as Bitcoin weakened. CoinDesk said that “while many decentralized finance (DeFi) blockchains such as Tron (TRX) have recently posted strong yields, these blockchains as well are failing to withstand this downturn,” adding that “the only major virtual asset up year-to-date is Hyperliquid (HYPE).”

The industry suggests that classifying projects outside Bitcoin and major altcoins as “high-risk assets” contributed to this outcome. Jeff Dorman, chief investment officer (CIO) at Arca, said, “The problem is that the market has not formed a consensus around defensive sectors as in traditional finance,” adding, “DeFi platforms need to be clearly positioned as defensive assets.”

The spread of stablecoins was also cited as a key factor deepening the crypto market’s “consolidation.” Markus Thielen, head of 10x Research, said, “Stablecoins serve as cash-like assets in the crypto market, enabling investors to quickly move into neutral positions when Bitcoin falls,” adding, “The very structure in which Bitcoin accounts for more than 50% of total market capitalization makes diversification difficult.”