What comes next for battered bitcoin?
Following President Trump’s election victory on 5 November,
bitcoin surged from $70,000 to a high of $109,356 on his inauguration day, 20 January 2025. Its rally was fuelled by several pro-crypto moves by Trump, including replacing former Securities and Exchange Commission (SEC) Chair Gary Gensler with crypto advocate Paul Aitkins.
Trump also announced plans for a ‘United States (US) stockpile’ of bitcoin and appointed Silicon Valley venture capitalist David Sacks as the first crypto czar in his administration. Additionally, Trump revealed last September that his family was involved in launching World Liberty Financial, a crypto venture they financially benefit from without managing.
Bitcoin’s record-setting rally
As an asset class, bitcoin has become accustomed to a constant flow of positive news over the past 18 months. A year ago, it was nearing new record highs after the SEC approved the first bitcoin exchange-traded fund (ETF), attracting many retail and institutional investors into the space without needing to use a crypto exchange or create a wallet.
Bitcoin also gained support from the Federal Reserve’s (Fed) 100 basis points (bp) of interest rate cuts, which boosted risk sentiment into the end of 2024.
Emerging headwinds challenge crypto optimism
However, as with most cycles, the flow of good news cannot continue indefinitely, and tailwinds are eventually replaced by headwinds.
Trump’s tariffs and geopolitical uncertainty have impacted confidence and risk appetite.
Risk sentiment also suffered after the emergence of DeepSeek in late January, a cost-effective Chinese AI model that has raised questions about the supremacy and valuations of US tech companies. Bitcoin sits at the very pointy end of the risk spectrum, and if risk sentiment starts to deteriorate, as it has for US tech stocks, it will impact investors’ appetite to hold more speculative assets such as bitcoin.
Adding to the negative sentiment is a new hacking scandal, with reports of a $1.5 billion theft from the crypto exchange Bybit, the largest in the industry’s history. Bybit’s Chief Executive Officer (CEO) assured clients that the exchange has secured bridging loans to cover the loss until the stolen assets are recovered.
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Trust issues in the crypto ecosystem
However, exchanges, like banks, rely on investor confidence, which can quickly evaporate. While some hoped the days of Sam Bankman-Fried and FTX were behind us, it’s clear that bad actors remain in the crypto ecosystem, posing fresh challenges for the king of crypto in 2025.
Bitcoin technical analysis
Technically, this week’s sell-off indicates that bitcoin struck a medium-term (Wave V) high at $109,356 in January and that a pullback toward the 200-day moving average at $81,000 is underway.
The million-dollar question is whether the $81,000 support region will hold firm or if we’ll see a steeper decline into the band of solid medium-term support in the $75,000 – $65,000 area, coming from previous highs in March 2024, November 2021, and April 2021.
Aware that a sustained rally back above $100,000 is needed to provide an initial indication that the current correction is complete.
