Bitcoin once dropped below 72,000. How much faith remains in the crypto community?

Author: Yang Chen, Wall Street Insights

Bitcoin falls below the $72,000 mark, bringing the “faith” issue in the crypto market to the forefront. Against the backdrop of a sharp decline in global risk appetite, investors are reassessing Bitcoin’s role amid market turbulence, and the safe-haven narrative of crypto assets is being questioned.

According to Bloomberg, Bitcoin briefly dropped to $71,739 at the close in New York on Wednesday, marking its first fall below $72,000 in approximately 15 months. Compared to its peak in October last year, Bitcoin has retraced over 42%, with a year-to-date decline of about 17%, falling to the lowest level since November 6, 2024.

This decline is no longer just an internal de-leveraging within the crypto market but is driven by broader cross-asset pressures. On Wednesday, global markets experienced synchronized sell-offs, with the Nasdaq 100 index falling over 2%. Sectors more sensitive to interest rates, such as software and chips, came under pressure, dragging Bitcoin lower.

On the emotional front, a “crisis of faith” is forming. Shiliang Tang, Managing Partner at Monarq Asset Management, said the market is experiencing a “crisis of faith.”

Andrew Tu, Head of Business Development at Efficient Frontier, stated that crypto market sentiment is now in a state of “extreme fear.” If the $72,000 level is lost, Bitcoin could drop to $68,000 or even retreat to the low range before the initial rebound in early 2024.

According to Polymarket, there is an 83% probability that Bitcoin will fall to $65,000 this year, and the probability of dropping below $55,000 has risen to about 59%.

Risk appetite shifts sharply, with Bitcoin regarded as a “high-volatility risk asset”

Bloomberg reports that the selling pressure on Bitcoin on Wednesday was related to broader cross-asset tensions rather than solely driven by internal crypto liquidation. This is significant for investors, as Bitcoin did not show resilience independent of risk assets during the synchronized sell-off phase but instead behaved more like a high-volatility tail risk asset.

The Nasdaq 100 index fell over 2% that day, with the decline spreading to sectors like software and chips. Bitcoin also broke through a key psychological level on the same trading day, reinforcing its market perception as resonating with risk appetite.

From a peak decline of 42%, the crypto market has evaporated over $460 billion in market value in a week

Price retracement is rapidly transmitted through market cap contraction. Data from CoinGecko shows that the total market value of crypto assets has shrunk by approximately $1.7 trillion since the October peak last year. In just the past week, the crypto market cap decreased by over $460 billion.

As the largest crypto, Bitcoin’s decline in magnitude and speed has an “anchoring effect” on market sentiment. When Bitcoin’s year-to-date decline widens to about 17%, risk control, margin management, and redemption pressures tend to rise simultaneously, further amplifying overall volatility.

How the “crisis of faith” emerges: from forced liquidations to emotional breakdown

Market participants’ statements indicate that emotional shifts are becoming a core variable. The “crisis of faith” mentioned by Shiliang Tang refers to the simultaneous wavering of investors’ confidence in the long-term narrative and short-term pricing mechanisms of crypto assets.

More critically, the change driven by the decline itself. Bloomberg reports that earlier declines were mainly driven by crypto-specific liquidations, while the pressure on Wednesday stemmed from broader cross-market tensions.

This means that even if internal leverage within the crypto market eases, Bitcoin may still lack an independent rebound catalyst as long as external risk assets remain under pressure.

$72,000 as a short-term watershed, market bets on a drop to $65,000 within the year

Several traders consider $72,000 a key short-term level. Andrew Tu pointed out that if this level cannot hold, Bitcoin is “very likely” to fall to $68,000 and possibly return to the low range before the initial rebound in early 2024.

According to Polymarket, there is an 83% probability that Bitcoin will fall to $65,000 this year, and the probability of dropping below $55,000 has risen to about 59%.

Market liquidity signals also show swings. Bloomberg compiled data indicating that the US-listed Bitcoin spot ETF saw about $562 million in net inflows on Monday but then reversed to a net outflow of $272 million on Tuesday, indicating that incremental funds are unstable.

Amid price declines and fluctuating capital flows, doubts about Bitcoin’s role as a “pressure period safe-haven asset” are rising.

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