The cryptocurrency market sharply declines, with Bitcoin falling below $89,000

The cryptocurrency market experienced a significant decline on Tuesday the 22nd. Bitcoin broke below the psychological support level of $89,000 and dropped into the $88,000 range. This decline was not merely a price adjustment but triggered by global macroeconomic instability. Confusion in the Japanese government bond market and new tariff concerns hinted at by the Trump administration have together severely dampened investor sentiment.

Structure of Bitcoin’s Rapid Drop: Loss of Technical Support

During Tuesday’s trading, Bitcoin faced a crisis of breaking through the early-year start level of $87,586. If this level is breached, it would wipe out all gains made since 2026, marking a critical point. CoinDesk’s market team is closely watching whether this psychological barrier will be defended.

The rally expected by the bulls to $100,000 has also lost its plausibility amid the sharp sell-off on the 23rd. Bitcoin, which hit a high of $96,000 at the beginning of the month, has lost over $7,000 within just three weeks. Veteran trader Peter Brandt points out that Bitcoin could reach a range of $58,000 to $62,000 within the next two weeks. A more pessimistic scenario, based on options market analysis, warns that there is about a 30% chance Bitcoin could fall below $80,000 by the end of June.

Ethereum also declined in tandem, currently falling to around $2,950. Solana is trading near $123, with a notable monthly decline.

Global Risk Factors: Tariff War and Japanese Bond Market Turmoil

Understanding this decline in the crypto market requires considering macroeconomic trends. President Trump, ahead of his visit to Davos, delivered a speech at the White House, intensifying threats of increased tariffs against Europe. This geopolitical uncertainty is exerting selling pressure across risk assets.

Even more serious is the turmoil in the Japanese government bond market. This chaos is triggering a unwind of global leveraged positions through the dollar-yen exchange rate. Algorithmic trading is reacting in a chain reaction, causing risk assets including Bitcoin to be sold off en masse. According to Bloomberg, Denmark’s large pension fund, AkademikerPension, has indicated plans to reduce holdings due to declining confidence in U.S. Treasuries.

Market Panic Spills Over: Related Stocks Also Decline

Tuesday’s chaos extended to crypto-related companies. Coinbase fell 5.5%, and Circle (a stablecoin company) dropped 7.5%. Notably, MicroStrategy (MSTR), a major Bitcoin holder, declined 7.8%. Bitcoin miners’ stocks also mostly entered the red zone, reflecting a broad deterioration in sentiment.

The S&P 500 index closed down about 2%, and the Nasdaq 100 experienced a similar decline. The VIX fear index rose about 5%, indicating increased market caution. This was the worst intraday performance since October, during Trump’s tariff threats.

Accelerated Asset Liquidation: Derivatives Market Turmoil

Throughout Tuesday, approximately $486 million worth of long positions in the crypto market were liquidated. This is the second-largest liquidation day after Monday’s $637 million, marking the worst two consecutive days since the beginning of the year.

Open interest in Bitcoin futures increased from $28.5 billion to $29.3 billion during the sell-off. This suggests traders are not selling spot but are expanding short positions in anticipation of further declines. Conversely, Ethereum shows a different pattern, with open interest decreasing more significantly amid a 6% price drop over 24 hours, indicating that the price movement is mainly driven by spot trading.

Gold and Silver Remain Resilient: Asset Allocation Shift Evident

Interestingly, traditional safe-haven assets like gold and silver are showing steady gains. Gold rose 3% on Tuesday to reach $4,750. Silver surged over 7%, exceeding $95 per ounce. This contrasting movement clearly indicates that investors are reallocating their portfolios from volatile cryptocurrencies to more stable traditional assets.

James Harris, CEO of Tessera Group, states, “The strength of gold is understandable given the current macroeconomic environment. Ongoing geopolitical tensions, U.S. fiscal uncertainty, and strong central bank support reinforce its role as a defensive hedge.” He also comments that “Bitcoin is lagging because liquidity is tighter and risk appetite is more subdued.”

Mike Novogratz, CEO of Galaxy Digital, notes, “The rising price of gold indicates that the U.S. is rapidly losing its reserve currency status. The decline in long-term bonds is also a bad sign. Bitcoin continues to face selling pressure, and to regain an upward trend, it needs to break through the $100,000 to $103,000 level.”

Outlook for Recovery: Time Needed

The DeFi market has shown relative strength amid Tuesday’s sell-off, with total value locked (TVL) across protocols maintaining an upward trend since October 2023. This suggests that yield-seeking demand has not disappeared and that traders are continuing to hold stablecoin allocations to keep their positions neutral.

While some bears predict short-term declines, many industry experts see this current turmoil as a temporary correction, expecting a new upward phase after the bottom is reached. However, a recovery in the crypto market depends on stabilizing the global macroeconomic environment. Easing tariff war concerns and stabilizing government bond markets, including Japan, are key to the rebound.