The recent surge in the cryptocurrency market experienced a setback on Tuesday, as Bitcoin (BTC) retraced from its all-time high of over $126,000, dropping to approximately $111,480.33. Analysts have indicated that this pullback may suggest an overheating in the crypto rally, at least in the short term. Bitcoin’s price fell below $122,000, representing a 2.4% decline within a 24-hour window, which effectively wiped out gains made over the previous three days. This decline had a cascading effect on the broader crypto market, with notable cryptocurrencies such as XRP, DOGE, ADA, and AVAX experiencing losses ranging from 5% to 7% during this time.
This pattern of price movement in Bitcoin is not unprecedented. Despite a remarkable year-to-date increase of 31%, Bitcoin has left its bullish investors with little opportunity to celebrate their successes. Each time the cryptocurrency reached a new record high, it was often followed by a rapid and severe sell-off. For instance, the initial surge to $109,000 in January, just before the Trump inauguration, quickly retraced to $100,000 within hours and further down to $75,000 over the subsequent three months. Similarly, a rise above $123,000 in July led to a decline of nearly 10% shortly after, and a surge past $120,000 in mid-August preceded a drop of about 15% in the following days.
This latest downturn occurred following a significant 16% increase from the late September lows, which had fallen below $109,000. Jean-David Péquignot, Chief Commercial Officer of the options trading platform Deribit, suggested in a report on Monday that Bitcoin might revisit the $118,000 to $120,000 range, potentially shaking out traders who entered the market late. Should this pullback materialize, Péquignot believes it could create a buying opportunity, as both technical indicators and the broader economic environment appear favorable for Bitcoin to exceed $130,000 by the end of the year.
Vetle Lunde, head of research at K33, also pointed out that the derivatives market and ETF inflows showed signs of overheating. He noted that the previous week marked the highest level of Bitcoin accumulation for the year, with a total of 63,083 BTC (approximately $7.7 billion) added across U.S. ETFs, CME, and perpetual futures, exceeding the peak seen in May. This growth was fueled by widespread long positions betting on rising prices without a clear macroeconomic catalyst, setting the stage for a potential decline. “Historically, similar spikes in exposure have frequently coincided with local peaks, and the current situation indicates a temporarily overheated market with a heightened risk of short-term consolidation,” Lunde stated.
Fed’s Miran Comments on Neutral Rate
Federal Reserve Governor Stephen Miran, a recent appointee by Trump, expressed on Tuesday that his perspective on the neutral interest rate has shifted dramatically during a discussion at the Managed Funds Association Policy Outlook 2025. He now posits that the neutral rate should be set at 0.5%. Miran attributed this change to stricter immigration policies and evolving views regarding the federal deficit. His remarks imply that long-term influences on the U.S. economy are undergoing a transformation. A reduced labor pool could hinder economic growth, while increasing fiscal pressures might complicate the Federal Reserve’s efforts to balance inflation and employment. These comments come as policymakers are deliberating on the Fed’s capacity to lower rates without triggering renewed inflationary pressures, particularly as they prepare for a meeting at the end of the month regarding potential rate cuts, despite ongoing governmental shutdowns that have delayed critical economic data.
Miran also observed that economic growth during the first half of the year fell short of expectations, primarily due to uncertainty surrounding trade and tax policies. However, he adopted a more optimistic view for the coming months, stating that much of this uncertainty has dissipated. “With clearer policy signals, I anticipate a more consistent pace of growth,” he noted.
Impact on Crypto-Related Stocks
The overall decline in cryptocurrency prices is also affecting related stocks, with shares of MicroStrategy (MSTR) dropping by 7% and Coinbase (COIN) experiencing a 4% loss. Additionally, companies such as Bitmine Immersion (BMNR) and Sharplink Gaming (SBET) saw declines of 3% and 7%, respectively. Bitcoin mining firms are largely facing negative trends as well, with MARA Holdings down 4% and Riot Platforms (RIOT) seeing a 3% decrease. Hut 8 (HUT) also reported a 2% decline in its stock value.
