Launched in 2009 as the world’s first decentralized digital currency, Bitcoin emerged in the wake of the 2008 global financial crisis that shook confidence in traditional banking institutions. The basic idea behind its emergence was to give individuals financial independence and reduce dependence on the centers of power on Wall Street.

From the beginning, the currency carried a revolutionary character based on decentralization and removing financial decisions from the control of traditional systems, which attracted a wide segment of investors looking for an alternative to the prevailing monetary system.

But over time, Bitcoin gradually integrated into the global financial system, becoming more closely linked to capital flows and major investment institutions, making it vulnerable to the influence of macroeconomic factors.

Tariff shock and trend reversal

This connection was clearly demonstrated when US President Donald Trump’s threats to impose tariffs on China led to a massive liquidation wave in the digital currency market on October 10 last year.

That wave came just a few days after Bitcoin hit a historic high of $126,080 on October 6, before entering a sharp downward trajectory.

The currency is currently trading roughly 45% below that record level, reflecting the shift in investors’ risk appetite.

Six factors behind the decline

Matt Hogan, chief investment officer at Bitwise, earlier this month identified 6 main reasons behind the collapse in the cryptocurrency market.

He first pointed out that long-term investors began selling in anticipation of what is known as the quadruple cycle for digital currencies, as the market has historically been accustomed to 4-year cycles, with the years 2014, 2018, and 2022 witnessing negative performance. Based on this pattern, some traders expect 2026 to see a similar decline, prompting them to take profits early.

Secondly, he explained that although digital currencies remain the most exciting and volatile sector in the markets, a portion of capital has moved to other attractive sectors such as artificial intelligence and precious metals, which has reduced inflows into the crypto market.

Political and technical factors increase pressure

Thirdly, he pointed out that the digital currency market bore the shock resulting from the tariff threats alone, as October 10 coincided with a weekend in which Wall Street was closed, which doubled the impact of selling pressures on digital assets.

Fourthly, he added that the nomination of “Kevin Worsh” to head the Federal Reserve Board caused concern in the markets, given that he is considered one of those who have hawkish tendencies in monetary policy, which may mean a less supportive environment for high-risk assets.

Fifthly, he pointed out that there are growing concerns within the Bitcoin community about the approaching threat of quantum computing, amid a belief that current efforts are not sufficient to address potential risks to network security.

Shifting risk appetite in markets

Sixth, he emphasized that Bitcoin was affected by the broader shift in markets towards risk aversion, as investors tended to reduce their exposure to volatile assets in light of escalating geopolitical tensions and tightening monetary policies.

This shift reflects the fact that Bitcoin no longer moves in isolation from the global economic context, but has become part of the risk-return equation that governs the decisions of large investors.

Thus, the currency that was born as a libertarian project outside the traditional financial system today appears more connected to it than ever before, placing its future dependent not only on its internal factors, but also on the fluctuations of global economics and politics.

Warning of a radical shift in market behavior

Mike McGlone, a Bloomberg Intelligence strategist, warned on February 16 that the “buy every dip” mantra that has dominated markets since 2008 may be coming to an end.

He explained that talk of a healthy correction may be too optimistic, noting that an additional wave of decline has become a tangible reality in his estimation.

He stressed that the strategy that investors have relied on for more than a decade, based on seizing declines as buying opportunities, may not be effective in the current environment.

Sharp contrast between stocks and digital currencies

McGlone noted that the US stock market continues to rise in an environment characterized by low levels of volatility, while the digital asset market has lost confidence in President Donald Trump, as he described it.

He warned that the digital currency bubble is going through a gradual bursting phase, which reflects the decline in risk appetite towards this type of asset.

On the other hand, he pointed out that precious metals traders are making huge profits, which highlights the growing gap between the performance of gold and the performance of digital currencies at the current stage.

McGlone published a graph comparing the price of Bitcoin, after dividing it by 10 for measurement purposes, with the Standard & Poor’s 500 index. The drawing showed that both assets are moving below the 7,000 level on the scale used, indicating a relative convergence in the graphical path despite the different nature of the two markets.

McGlone believes that the first normal return for the Standard & Poor’s 500 index may be towards the level of 5,600 points, which is equivalent to $56,000 for Bitcoin according to the same measure.

In a more pessimistic base scenario, Bitcoin is expected to return to around $10,000 if the stock market peaks and begins to decline.

Jeff Kendrick, head of digital assets research at Standard Chartered Bank, also takes a negative view, but to a lesser extent, as Bitcoin is likely to fall towards $50,000 in the coming months.

Counter-optimism from Wall Street

On the other hand, JP Morgan analysts, led by CEO Nikolaos Panigirtzoglou, maintain a positive outlook towards the digital currency.

These analysts predicted earlier this month that Bitcoin would eventually reach the $266,000 level, reflecting a sharp divergence in future estimates.

This difference in visions reveals a deep division within major financial institutions regarding the next path for Bitcoin, between those who see the end of a historic bull cycle and those who believe that a larger rally is still on the horizon. (investing)