Bitcoin is in free fall – and traders are bracing for more pain.
The world’s largest cryptocurrency fell below $91,500 on Monday, deepening a selloff that erased all of its gains for the year. In the options market, traders are making increasingly bearish bets, convinced that the slide is far from over as deep-pocketed buyers retreat.
The shift in emotions is fast and sharp. Demand for downside protection has risen. Protection options that expire later this month are seeing particularly heavy activity, according to data from Coinbase-owned Deribit.
After riding Bitcoin to its highs just weeks ago, traders have held more than $740 million worth of contracts betting on continued declines ending in late November — far outweighing interest in bullish positions.
“The absence of immediate conviction-driven demand is becoming increasingly apparent, as buyers who have accumulated positions over the past six months now find themselves significantly underwater,” said Chris Newhouse, research director at Ergonia, a DeFi firm.
The pain has been centered in companies known as digital asset vaults, which are companies that stored large amounts of cryptocurrencies earlier this year in an attempt to become bets on hoarding cryptocurrencies on the stock market. While Strategy Inc. affiliated with Michael Saylor just bought another $835 million worth of bitcoin, some of his corporate peers are facing increasing pressure to sell assets to protect their balance sheets.
The Bitcoin sell-off has created a psychological burden: a market crowded with investors who are so deep in the red that they cannot buy more, but are not yet ready to cut their losses.
A sentiment index compiled by data analysis platform CoinMarketCap indicates that cryptocurrency participants are mired in a state of “extreme fear.”
Larger economic forces are also affecting sentiment. Traders are looking forward to Wednesday’s earnings from Nvidia Corp. – The leader in technology and speculative risks – as well as changing expectations for a possible interest rate cut from the Federal Reserve in December. The Standard & Poor’s 500 index fell by more than 1%, which affected sentiment towards risk assets of all types.
“I think the Fed bubble talk and AI are major headwinds for crypto and risk assets heading into the end of the year,” said Adam McCarthy, research analyst at Caico. “AI risks are likely to worsen and impact risk sentiment in cryptocurrencies,” he said, adding that to the rhetoric coming out of FOMC officials, “you are looking at a sustained downtrend for Bitcoin.”
Ethereum’s token, ether, has proven particularly vulnerable. The world’s second-largest cryptocurrency fell to $2,975, bringing its decline to 24% since early October.
“Ethereum is highly exposed to this issue as the largest digital asset treasuries are currently experiencing a decline in their positions,” said Greg Magadini, Director of Derivatives at Amperdata.
The broader market has been reeling since a sharp wave of liquidations in early October wiped out about $19 billion in digital assets. Open interest in cryptocurrency futures has fallen, particularly in smaller tokens like Solana, where positioning has fallen by more than half, according to Coinglass data.
“This risk-on tone extends to crypto markets, where sentiment remains fragile – and the recent decline reflects broader macro tensions rather than structural flaws,” said Thomas Perfumo, global economist at cryptocurrency exchange Kraken.
