- Bitcoin plunged 8% to $67,000, triggering $1.5 billion in long liquidations and a $176 billion crypto market cap loss.
- The drop coincided with $2.1 billion in Bitcoin ETF outflows and a breakdown in its correlation with US small-cap stocks.
- Market sentiment worsened as traders priced in a higher probability of a Federal Reserve interest rate hike by September.
- Analysis suggests Strategy paused its Bitcoin buying to manage debt, sparking criticism of its balance sheet strategy.
Bitcoin faced a sharp correction this week, plummeting 8% to test the $67,000 support level for the first time in two months. The sell-off erased $176 billion from the total cryptocurrency market capitalization and forced over $1.5 billion in leveraged long positions to close.
Traders remain uncertain about the drivers, especially given the notable strength in US equities. The tight correlation between Bitcoin and the US Russell 2000 small-cap index officially broke on May 21 after a solid two-month run, data shows.
Consequently, worsening sentiment was fueled by substantial outflows from US-listed spot Bitcoin ETFs. Between May 12 and May 20, these funds saw $2.1 billion in net withdrawals.
Derivatives data had already signaled weak institutional demand. The annualized Bitcoin futures premium has remained below the neutral 4% threshold for over three months, confirming a lack of bullish leverage appetite, according to Laevitas.
Meanwhile, Strategy sparked mixed reactions by pausing its weekly Bitcoin purchases to buy back convertible debt. X user ‘bjunjo’ said the company entered “survival mode for their debt holders and shareholders,” putting aside its mission to accumulate more Bitcoin.
Jeff Dorman, Chief Investment Officer at Arca, called the move “a complete balance sheet mismanagement.” Concurrently, capital continues concentrating in Artificial Intelligence stocks, with JPMorgan research finding 41 AI-related stocks account for half the S&P 500’s value.
Ultimately, traders grew risk-averse due to geopolitical tensions and shifting monetary policy expectations. The CME FedWatch Tool now prices a 23% chance of a Federal Reserve rate hike by September, up from 0% one month ago.
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