Bitcoin briefly rose toward $74,000 this week, buoyed by a series of positive developments linking the cryptocurrency industry more closely with traditional finance.
Some market watchers are starting to call it a bullish rally, with one analyst even saying that the new uptrend will ‘continue.’
But the rally did not last long. By the end of the week, the largest cryptocurrency had fallen below $69,000 again, losing $110 billion in market capitalization.
The adjustment comes despite what could be considered one of the most positive institutional news stories for the sector in months.
Morgan Stanley has selected Bank of New York Mellon as custodian for exposure to its spot Bitcoin ETF, adding another layer of Wall Street infrastructure around the asset class, and has gained access to cryptocurrency exchange Kraken. The connection to the Federal Reserve’s payments system is an important milestone in integrating cryptocurrency companies with the U.S. banking network. New York Stock Exchange owner InterContinental Exchange (ICE) invested in cryptocurrency exchange OKX, valuing OKX at $25 billion, while US President Donald Trump has publicly suggested that traditional banks should establish substantive partnerships with the cryptocurrency industry.
Taken individually, any one of these developments alone could have sparked a market rally in past cryptocurrency cycles, when institutional adoption was seen as the catalyst that would lead to a massive bull market for cryptocurrencies. But even though adoption is now a reality, it is being overridden by macroeconomic factors that dominate the market.
Cause of selling tax
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The sell-off was mainly triggered by the strength of the US dollar. As the civil war in Iran deepens, U.S. President Donald Trump virtually blocks the possibility of reaching a deal with Iran by saying, “There will be no deal with Iran.”
This triggered a surge in oil prices, new inflation concerns and a shift in interest rate outlook (although employment data showed weakening markets, putting pressure on risk assets globally). As the dollar index rose, stocks fell, and cryptocurrencies, which have increasingly tended to trade alongside technology stocks (i.e. risky assets), also followed suit.
If that wasn’t enough, the rift in the global private credit market has spread to Wall Street giant BlackRock, which has reportedly started to withdraw money from its $26 billion private credit fund, which has been restricted from withdrawals due to a surge in redemption requests. Investor anxiety is growing following similar difficulties as Blue Owl, which sold $1.4 billion worth of loans last month to respond to withdrawal requests.
reality check
What does this week’s episode mean? A phenomenon that is increasingly becoming a reality in the cryptocurrency market: macroeconomics is becoming more important than cryptocurrency-specific news.
Over the past few years, Bitcoin has become more correlated with the Nasdaq and other risk assets as institutional investors enter the market. Hedge funds, asset managers and ETF fund flows increasingly view Bitcoin as part of their asset portfolios that are sensitive to macroeconomic variables and react to liquidity conditions, interest rates and dollar strength.
Ironically, the same institutional adoption that many in the industry have long sought may be contributing to this dynamic.
As Bitcoin becomes more deeply integrated into traditional financial portfolios, its price is increasingly influenced by the same factors that move stocks, commodities and currencies. When the dollar strengthens or interest rate expectations rise, liquidity tightens across markets — and cryptocurrencies are rarely an exception.
This does not mean that steady progress in institutional development is meaningless. The expansion of custodial services, banking accessibility, and increased investment in exchanges suggest that a deeper, more mature cryptocurrency market structure is forming beneath the surface.
Who is selling?
When conflicting price movements like these hit the markets, one question investors ask is: Who is selling?
Macro risks appear to have primarily discouraged short-term Bitcoin holders, who cashed out once Bitcoin reached $74,000.
These short-term holders transferred more than 27,000 BTC ($1.8 billion) to exchanges in profit over the past 24 hours, one of the biggest surges in recent months, according to CryptoQuant analyst Darkfost.
Short-term holders are typically the most responsive group in the market, and their selling reflects continued caution amid the ongoing war in Iran and other macro uncertainties. These holders behave more like traders moving in and out of assets for short-term profits, rather than investors buying and selling with the intention of holding for the long term. And due to Bitcoin’s thin liquidity, these movements affect price fluctuations
And the data shows it.
The only group of short-term investors currently benefiting are those who have accumulated Bitcoin for between a week and a month at a realized price of around $68,000, suggesting that some investors who recently bought above that price are choosing to take profits rather than expand their positions.
In the short term, with cryptocurrencies in the midst of a bear market and macroeconomic uncertainty that has persisted since early October, price is the only factor that matters to investors.
the hopeful side
But not everything is bleak.
According to a recent Binance Research report, U.S. spot Bitcoin ETFs recorded net inflows of approximately $787 million last week, the first positive weekly flows since mid-January, suggesting that some institutional investors may be starting to re-engage with the market after weeks of net outflows.
In fact, at a recent conference call, large university funds that tend to focus on long-term returns revealed that they have begun examining other alternative investment ideas, including digital asset-related ETFs, given the very high valuations of traditional stocks.
The report also pointed to signs that the speculative excess may have already been liquidated.
The Bitcoin funding rate has fallen to its lowest level since 2023, indicating that leveraged long positions have been largely liquidated — a situation that has historically served to lay the foundation for a more robust rally driven by spot demand rather than short-term speculation.
In the end, it all depends on your beliefs and market movements.
Some traders called the sharp rise earlier this week a “bull trap” — a brief surge that lures late buyers and then reverses downward. Institutional confidence is rising, but given the lack of liquidity, volatile markets, macro headwinds and the absence of a clear catalyst, Bitcoin’s price action appears to have proven their concerns correct, at least this week.
Read more: Bitcoin is currently in a plateau, but JPMorgan says new legislation could be the ultimate catalyst
