The crypto market experienced a slowdown on Tuesday as Bitcoin (BTC) retraced from its recent peak above $126,000, quickly falling to approximately $121,413.60. Analysts have expressed concerns that the current crypto rally may be overheating, at least in the short term. Bitcoin’s value dropped below $122,000, negating three consecutive days of gains and resulting in a 2.4% decrease over a 24-hour period. This decline triggered a broader selloff across the cryptocurrency landscape, impacting major coins like XRP, DOGE, ADA, and AVAX, which saw reductions ranging from 5% to 7%.
### Bitcoin’s Familiar Price Patterns
The recent price movements in Bitcoin may seem recognizable to market observers. Despite a 31% increase in value since the beginning of the year, Bitcoin has offered little respite to investors celebrating their gains. Historically, each new record has been quickly followed by sharp sell-offs. For instance, the rally to $109,000 ahead of January’s Trump inauguration was swiftly reversed to $100,000 within hours and fell to $75,000 over the next three months. Similarly, a surge past $123,000 in July was followed by a roughly 10% drop, while a rise above $120,000 in mid-August preceded about a 15% decline.
The recent downturn follows a remarkable 16% increase from late September lows of under $109,000. Jean-David Péquignot, Chief Commercial Officer of the options exchange Deribit, indicated in a report that Bitcoin might revisit the $118,000-$120,000 range, potentially shaking out latecomers to the rally. He believes that such a pullback could present a buying opportunity, as both technical indicators and macroeconomic conditions could pave the way for Bitcoin to exceed $130,000 in the final quarter of the year.
### Overheated Derivatives Market
Vetle Lunde, head of research at K33, highlighted that the derivatives market and inflows into exchange-traded funds (ETFs) have become overheated. He reported that the past week saw the highest accumulation of Bitcoin for the year, with a total of 63,083 BTC (approximately $7.7 billion) added across U.S. ETFs, the Chicago Mercantile Exchange (CME), and perpetual futures, surpassing previous peaks from May. This surge was primarily fueled by widespread long positions anticipating rising prices, albeit without a clear macroeconomic catalyst, setting the stage for a potential pullback. “Historically, similar spikes in exposure have often coincided with local market tops, and the current conditions indicate a temporarily overheated market with increased risk of short-term consolidation,” Lunde remarked.
### Fed’s Adjusted Neutral Rate Perspective
Federal Reserve Governor Stephen Miran, appointed by Trump, stated on Tuesday that his perspective on the neutral interest rate has shifted significantly. Speaking at the Managed Funds Association Policy Outlook 2025, he now advocates for a neutral rate of 0.5%. Miran attributed this reassessment to stricter immigration policies and changing expectations regarding the federal deficit. His comments imply a shift in the long-term dynamics that influence the U.S. economy; a reduced labor pool could hinder growth, while escalating fiscal challenges may complicate the Fed’s efforts to balance inflation and employment. With a critical meeting approaching at the end of the month to discuss potential rate cuts, the ongoing government shutdown has delayed essential data releases.
Miran also acknowledged that economic growth in the first half of the year fell short of projections, primarily due to uncertainties surrounding trade and tax policies. However, he expressed optimism for the upcoming months, stating that much of this uncertainty has now dissipated. “With more definitive policy signals, I anticipate a more stable growth trajectory,” he added.
### Cryptocurrency Stocks Hit Hard
The recent downturn in cryptocurrency prices is adversely affecting related stocks, with MicroStrategy (MSTR) experiencing a 7% decline and Coinbase (COIN) suffering a 4% loss. Ether (ETH) and companies like Bitmine Immersion (BMNR) and Sharplink Gaming (SBET) also faced decreases of 3% and 7%, respectively. Bitcoin mining companies have not been spared, with Marathon Digital Holdings (MARA) dropping by 4% and Riot Platforms (RIOT) decreasing by 3%. Hut 8 Mining (HUT) also saw a 2% decline in its stock value.
