Bitcoin has once again failed to deliver on its promise as a safe-haven asset after a week of severe decline that saw its market value evaporate by thousands of billions. The cryptocurrency, often touted as the "digital gold" of the blockchain era and a tool for hedging against market turbulence, continued its downward trend during early trading on Friday in London. Its price fell by as much as 3%, dropping below $105,000. The second-largest token, Ethereum, dipped below $3,800, retreating over 20% from its August peak. Meanwhile, Binance-associated BNB token plummeted by 11% on Friday.
Between October 10th and 11th, technical issues and price discrepancies faced by users on the world’s largest cryptocurrency exchange triggered what analysts deemed a record liquidation spree. In response to the fallout, Binance has since provided nearly $600 million in compensation to users and businesses. Bitcoin had just reached a historic high of $126,251 on October 6. Days later, escalating trade tensions between the U.S. and China led to over $19 billion in liquidations, with most mainstream tokens experiencing significant sell-offs.
Despite industry giants like Kraken, Circle, BitGo, and Ripple making moves to delve deeper into regulated financial sectors by seeking trust licenses, payment channels, and credit card products, the market has struggled to achieve sustainable recovery. Rachel Lucas, an analyst at BTC Markets, noted, "It's noteworthy that this decline coincides with the timing when major institutions are seeking banking licenses." She added that the shift towards traditional financial infrastructure "indicates a strategy to hedge against volatility aimed at establishing legitimacy."
The risks brought about by U.S.-China trade conflicts continue to impact risk assets beyond cryptocurrencies. The recent collapses of First Brands Group and Tricolor Holdings have reignited concerns over hidden credit losses, while Zion Bank (ZION.US) and Alliance West Bank (WAL.US) wiped out over $100 billion in U.S. bank market value due to fraud-related write-offs in a single day. Amid growing risk aversion, investors pulled a net $593 million from Bitcoin and Ethereum exchange-traded funds listed in the U.S. on Thursday.
The Bitcoin put/call options ratio on the cryptocurrency derivatives platform Deribit surged to 1.33 in the past 24 hours, signaling increased activity aimed at hedging against further price declines. As traditional safe-haven assets like gold and silver continue to hit new highs, Bitcoin’s performance has disappointed. By the week ending October 12, its decline reached 6.3%, marking its worst performance since early March, and it has yet to rebound. Most cryptocurrencies are similarly lagging. Matthew Hougan, Chief Investment Officer at Bitwise, remarked, "Importantly, I see cryptocurrencies as canaries in the coal mine, signaling market tension due to emerging credit concerns."