The Japan Times - Why bitcoin is losing its luster after stratospheric rise

The digital currency slumped to $60,033.01 on Friday before trimming losses, and is down around half from its October peak above $120,000.

AFP explains why prices have fallen.

- End of Trump rally -

Digital currencies soared after Trump's election victory as he was widely viewed as a strong supporter of the technology.

He publicly celebrated bitcoin crossing $100,000 for the first time in December 2024.

But the rally suffered a sharp setback in April after Trump announced sweeping US tariffs, rattling markets worldwide.

Bitcoin later resumed its march higher along with stocks and other markets, and hit a record of $126,251.31 six months later.

But enthusiasm has faded as investors grow impatient over regulatory uncertainty.

While the US Congress passed a law in July to regulate stablecoins -- a form of cryptocurrency backed by traditional assets -- a broader crypto bill, the Clarity Act, has stalled in the Senate.

"A key test for Bitcoin's ability to sustainably recover will be the passage of the Clarity Act," said Deutsche Bank analysts Marion Laboure and Camilla Siazon.

- Domino effect -

The recent slide in precious metals like gold and silver -- as investors locked in profits after their meteoric rise -- was one of the main triggers for bitcoin's slump.

That pullback sent many investors rushing to sell cryptocurrencies and other risky assets to help raise cash.

"This break is not happening in a vacuum, but in a context of widespread mistrust," said John Plassard, head of investment strategy at Cite Gestion Private Bank.

"Volatility in technology and precious metals is fuelling a global movement to reduce risk."

The sell-off has been intensified by forced deleveraging, as investors who borrowed money to bet on bitcoin's rise are forced to sell when losses mount, pushing prices lower.

- Tech contagion -

Cryptocurrency declines gathered pace this week as investors sold tech stocks on renewed concerns over an artificial intelligence bubble.

Analysts noted that bitcoin and AI-related stocks often move in the same direction.

"In recent years, liquidity has flowed across digital assets and advanced tech stocks at the same time," said Kathleen Brooks, research director at trading group XTB.

"This means that both asset classes share a tight financial link."

Michael Burry, the entrepreneur who gained fame for spotting the 2008 subprime mortgage crisis, fanned fears on Monday as he flagged a possible "death spiral" for bitcoin.

- Crypto firms in focus -

The downturn has raised questions about the viability of digital asset treasury firms, which stockpile cryptocurrencies in a bet that prices will keep rising.

Many of these firms are "sitting on significant unrealised losses," said Charlie Sherry, head of finance at BTC Markets.

If these firms are forced to sell their bitcoin holdings to stay afloat, it could flood the market and amplify a downward spiral in prices.

Shares in Strategy, which holds more than 713,000 bitcoins, plunged more than 17 percent on Friday after it reported a $12.4 billion net loss linked to crypto declines.

And US cryptocurrency exchange Gemini announced Thursday that it would slash roughly a quarter of its workforce and withdraw from several international markets amid the downturn in digital assets.

T.Kobayashi--JT