The value of the cryptocurrency Bitcoin is in free fall. Last October, Bitcoin was trading around $126,000. After trading as low as $59,000 last week, it is now meandering around the $60,000 to $61,000 level.
This punishing drawdown has destroyed over $200 billion in market capitalization. What makes the sharp decline in Bitcoin more painful is that while the cryptocurrencies, including Bitcoin, have been falling like rocks, United States equities have been enjoying a blistering rally. To illustrate, even though the Nasdaq Composite fell by 4% last Friday, it remains up around 11% from the start of the year.
The Bitcoin crash is being driven by five main factors.
First, a major institutional investor in Bitcoin, Strategy, formerly MicroStrategy, sold a small portion of its $2 billion position in the currency. That was the first sale by Strategy in 4 years. The sale unnerved many Bitcoin investors, especially because the executive chairman of Strategy, Michael Saylor, had previously said that he would never sell Bitcoin.
Second, the slow bleed in the price of Bitcoin from its Oct. 2025 high has caused many investors in Bitcoin Exchange Traded Funds, ETFs, to sell. People don’t like to lose money. Bitcoin is a relatively new asset, and sustained falls in the price create a cascade of selling.
Third, U.S. interest rates have drifted higher since the October price peak for Bitcoin. Higher rates reduce investor appetite in high-risk assets.
Fourth, investors with risk appetite have abandoned Bitcoin and other crypto currencies for equities directly involved in the build out of Artificial Intelligence across the U.S.. Arguably, some of these investors asked themselves: “why invest in Bitcoin which is falling, when I can buy into the highly profitable AI semiconductor industry, which is up about 75% since the first of the year?”
Probably, the most important reason for the fall is that President Donald Trump is no longer the cheerleader in chief for Bitcoin and other cryptocurrencies. Trump moves markets. He continues to support Bitcoin, but now he is preoccupied with the Iran War, relations with China, inflation, and his personal resentments.
So what happens next with Bitcoin?
Bitcoin and other cryptocurrencies are a new asset class. The currencies are viewed as a highly leveraged hedge against the steady depreciation of the U.S. dollar caused by the massive federal fiscal deficit and the consequent very large deficit in internationally traded goods. But that view of Bitcoin is undermined by its price erosion, a 50% fall from its October highs, while the value of the U.S. dollar is largely stable.
Moreover, America’s dominance of the AI complex has silenced many of the critics of the U.S. economy. The AI Revolution has improved the long-term outlook for the country and its deficit.
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It now seems obvious that Bitcoin is an asset class whose fundamental value is determined by human emotion. When animal spirits are high with regard to Bitcoin and other cryptocurrencies, the asset class demonstrates very strong positive momentum. And of course, the opposite is true as is the case today. Human emotion is moving against Bitcoin. One of the foremost advocates for Bitcoin says that it needs a new story to change the current negative sentiment.
Bitcoin holders need to ask themselves why invest in an asset based on human emotion, which is highly fickle when there are alternative asset classes that appreciate in value: gold which is a long proven store of value, equities which generate real profits, and real estate, a durable asset that delivers positive inflation adjusted returns over time.
James Rogan is a former U.S. diplomat who later worked in law and finance for over 30 years. He writes a daily email note on markets, economics, politics, and social issues. He can be reached at [email protected].