3 Reasons Why Bitcoin is Retreating

After achieving two consecutive years of triple-digit profits in 2023 and 2024, Bitcoin is on track to have its weakest performance since 2022 in 2025. The world's most popular cryptocurrency has fallen 6% in the past 30 days and has only increased by 20% in the year as I write these lines. So what is happening? There are three reasons that could cause Bitcoin to fall. Reason Number 1: The General Weakness of the Macroeconomy For much of its history, Bitcoin has not been correlated with any major asset class. It may fluctuate when other assets fluctuate. This makes Bitcoin particularly attractive to investors. In most market conditions, Bitcoin can offer the potential for astronomical returns. But that may no longer be true. In many respects, Bitcoin may be much more susceptible to overall macroeconomic conditions than previously thought. In other words, Bitcoin will face much greater obstacles if job growth slows down, if inflation continues to rise, or if tariffs lead to weaker overall growth. And that is exactly what is happening right now. The fall of Bitcoin is completely reasonable when considering the level of interest it is receiving from institutional investors. Just a few years ago, retail investors were the ones leading the adoption rate of Bitcoin. But now, wealthy institutional investors hold enormous amounts of assets, and this could explain the current obsession of the cryptocurrency market with the Fed's potential to cut interest rates. Reason 2: Investors Are Diversifying into Other Cryptocurrencies Although Bitcoin still accounts for nearly 60% of the total cryptocurrency market capitalization, it is hard to ignore the level of interest that other segments of the cryptocurrency market are attracting from investors. There was a time when Bitcoin was the only game in town for institutional investors. But that is no longer the case. For example, consider the rise of so-called digital asset management companies. These companies do one thing: They raise funds from external investors and then reinvest that money into a specific cryptocurrency. This summer has seen the emergence of Ethereum, Solana, and XRP fund management companies. All that money could have flowed into Bitcoin. Or, for example, consider the sudden interest in stablecoins. Recently enacted laws may lead to a boom in stablecoin investment. According to a recent report from Citigroup, the stablecoin market size could skyrocket to $3.7 trillion in just a few years. This is also the amount that could have been invested in Bitcoin. This diversification from Bitcoin to other cryptocurrencies is not a new phenomenon. In fact, this is precisely the pattern that the cryptocurrency market experienced during the previous bull run of the 2020-2021 period. Bitcoin surged first, followed by Ethereum, and then lower market cap altcoins. Ultimately, there was a speculative boom in meme coins and NFTs. Reason 3: The Bitcoin Cycle is Underway This brings us to the possibly most concerning reason for Bitcoin's decline: Bitcoin's four-year cycle is approaching a price level that typically falls. If you are a Bitcoin investor, that is the last thing you want to hear, because it means that Bitcoin's recent decline could be a harbinger of what is to come at the end of 2025. There is nothing guaranteed in investing, but looking at history, the Bitcoin halving that occurs every four years is a catalyst for a strong price increase. So far, there have been four halvings, and the price increase phase after halving usually lasts from 12 to 18 months, followed by a classic "blow-off top" - a strong, rapid price increase, followed by a sharp, quick drop. In that case, Bitcoin reaches a new all-time high before ultimately collapsing in value. For example, in 2022, Bitcoin fell sharply by 64% after reaching a new all-time high in November 2021 following the halving in May 2020. The issue, to put it bluntly, is that the most recent Bitcoin halving event took place in April 2024. This means we have experienced 17 months in the phase where prices are expected to rise rapidly. In the worst-case scenario, there may only be a few months left before Bitcoin peaks again and the entire cycle starts over. Certainly, there are many signs indicating that the peak of this boom is forming. Billions of dollars are being invested in highly speculative digital assets, loss-making businesses are rapidly converting into digital asset management firms, new cryptocurrency companies are rushing to go public before the cryptocurrency IPO market closes, and Wall Street is quickly reassuring investors that "this time will be different." Therefore, if you are considering investing in Bitcoin right now, remember to conduct thorough due diligence and keep the investment at a small level. There are some very concerning signs that the fall of Bitcoin in the summer could be a warning sign for a challenging and volatile fourth quarter.