Bitcoin or Bust: Is It Time to Ditch Digital Assets?

Subscribers to Chart of the Week received this commentary on Sunday, February 8.

Not only is Bitcoin (BTC) staring down the barrel of a more than 10% weekly loss, but it is also trading at its lowest mark since October 2024 and just off its seventh daily drop in eight sessions. An extended Big Tech selloff has driven the most recent volatile price action, with Thursday sending the cryptocurrency below the round $70,000 mark, an area that marked long-term resistance from March through October 2024. This has worried investors, planting the possibility that the cryptocurrency will trudge into the clutches of the $60,000 to $65,000 areas, unable to claw its way out.

With steady selling indicating the digital currency may have been overhyped, should we avoid it? Or will this be but a mere 'blip' in its longer-term sustainability? BTC has gapped below its 365-day moving average for the first time since 2022, with weakening institutional demand a large catalyst. Among forced liquidations, this has triggered deep fears for traders that carried both short and long positions.

It’s important to note that Bitcoin has been anything but alone in its recent strife. Ether suffered its own deleveraging phase, with shares that were medium-term rangebound but unable to ride the recent wave of geopolitical tensions. Blockchain platform Solana was no better off, with more than $300 million worth of positions being liquidated in one day. Quantified visually in the Fear and Greed Index Chart below, we must also look at the impact this retreat from digital assets had on market value.

It’s worth mentioning commodities, too. Safe-haven assets seem to be less affected by geopolitical uncertainty out of the Middle East and the U.S., with Bitcoin easily underperforming gold, by a stark margin. In fact, while Bitcoin sports a 27.8% 12-month deficit, gold futures have charged 73% higher. However, JPMorgan Securities Friday interjected with a mark of contrarianism, saying Bitcoin could be a more attractive long-term bet over gold. Recent volatility and a rally out of gold adjusts its risk balance, subsequently strengthening BTC’s long-term risk profile and making the recent liquidation modest.

The recent severance from digital assets has certainly been felt far and wide, but could it have a silver lining? While excessive leverage is pared back, a clearer position for gaining capital and a cleaner path for future direction could be in hand. In fact, we could even be looking at a rally from crypto and blockchain, should any of this selling pressure begin to find relief -- or even an area of support.