Bitcoin just had its worst month since June 2022. The price fell below $60,000. Sustained selling pressure and forced asset liquidation drove the drop, echoing patterns seen in prior market slumps.

Why Bitcoin Dropped
This pattern looks similar to earlier crypto cycles, according to analysts. An additional element amplifying the selloff was anxiety over a potential Fed rate increase and reduced market liquidity should the central bank implement tighter monetary policy.

Ed Engel, an analyst at Compass Point, said the cycle has a familiar feel. "Crypto cycles historically end with a spectacular blow up and MSTR was becoming bears' leading candidate," he wrote Monday. MSTR is the stock ticker for Strategy, the digital asset treasury giant that holds bitcoin on its balance sheet.

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What Analysts Say Next
David Grider, a strategist at Finality Capital Partners, thinks the worst may not be over. "I don't think we bottom until September or October for bitcoin and most digital assets around it as well," he said. He predicted a possible drop to $40,000 or $45,000. "I don't think $40,000 or $45,000 would be unreasonable," he added.

Instead of acquiring additional bitcoin, Strategy raised over $1 billion in cash on Monday, which investors saw as a positive indicator of the firm's cash reserves and its capacity to meet dividend payments. Engel added that "this cycle hasn't had any major insolvencies related to leverage or fraud."

Worth Noting
The broader crypto market is going through a process of deleveraging. Thus far, the reduction in leverage has been largely confined to decentralized exchanges and hasn't spread to the wider cryptocurrency sector. Analysts are watching to see if that holds.

The $4.1 billion exodus from US spot bitcoin ETFs in June marks the largest monthly outflows since their January 2024 launch. Analysts note that such large-scale withdrawals often deepen price declines, as fund managers must sell underlying bitcoin to meet redemption requests - a dynamic that has historically prolonged bear markets in crypto.

This pattern of deleveraging and ETF outflows has historically signaled prolonged bearish phases. In the 2022 crypto winter, similar dynamics saw bitcoin lose over 70% of its value from its peak, with many leveraged positions liquidated. While the current environment lacks the major insolvencies of that period, the steady withdrawal from ETFs suggests that institutional sentiment remains cautious, potentially extending the downturn.

Analysts caution that the current downturn shares similarities with previous bear markets, such as the 2022 crypto winter that saw bitcoin drop below $20,000. However, the presence of spot ETFs introduces a new dynamic - institutional redemptions can accelerate price declines as fund managers liquidate holdings to meet withdrawals. The lack of major insolvencies so far, as noted by Engel, suggests this cycle may be different, but the deleveraging pressure remains a key risk.

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