Bitcoin experienced a period of low volatility over the summer, but that changed when it plunged over 8% in a few hours on Thursday. This led to a broader decline in the crypto market and raised concerns about the various threats facing digital assets. Despite Bitcoin’s recovery from last year’s lows, many investors are still cautious and not fully convinced of its potential. The recent decline in Bitcoin’s price could indicate a reversal of the trend seen this year, but further clues are needed to confirm this. The market’s overexposure to larger trades and its reliance on narratives to prop up prices contribute to its volatility. Regulatory actions and enforcement actions against crypto exchanges also impact the market. Despite these challenges, Bitcoin has shown resilience compared to global risk assets and the potential approval of a US spot crypto ETF could help maintain its value. However, without a catalyst like ETF approval, the market is likely to drift, and global macro factors will continue to influence investor sentiment. In the event of a financial meltdown, Bitcoin may benefit as an alternative financial system, but it is also susceptible to declines during stock market drops. Ultimately, the relative risk of each asset group will be recalibrated by investors.
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