SA Asks: Why is crypto crashing and when could it stabilize?

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It's been an ugly February so far for crypto, with Bitcoin (BTC-USD [https://seekingalpha.com/symbol/BTC-USD]) plunging roughly 45% from its all-time high in early October and several other cryptocurrencies following suit.

We asked Seeking Alpha analysts James Picerno [https://seekingalpha.com/author/james-picerno], Deep Value Investing, [https://seekingalpha.com/author/deep-value-investing] and Mott Capital Management [https://seekingalpha.com/author/mott-capital-management] why they thought crypto was crashing and when it could stabilize.

James Picerno [https://seekingalpha.com/author/james-picerno]: Crypto is tanking for several reasons.

One, the Trump bump that helped run crypto higher has run its course. After running higher as the Trump administration unleashed a sugar high of pro-crypto legislation and regulatory changes, the old Wall Street proverb kicked in: Buy on the rumor, sell on the news. Without a new round of legislation/regulation, this factor for crypto bulls has run out of road.

Two, gold's soaring price, which has held up relatively well even after the selling of recent days, highlights that the precious metal is the genuine article in terms of a hedge against macro/geopolitical risk, while bitcoin looks increasingly like a speculative asset disconnected from real-world events.

Three, there's a growing sense that bitcoin's allure has little, if any, application beyond speculation. Even if you're a crypto enthusiast, several alternatives, such as Ethereum, look better positioned to be a real-world digital currency with real-world applications.

Deep Value Investing [https://seekingalpha.com/author/deep-value-investing]: I’m seeing plenty of headlines linking Bitcoin’s drop to a 16-month low this week to things like Kevin Warsh’s quantitative tightening stance to shrink the Fed’s balance sheet or the failed White House meeting over whether stablecoins can pay rewards or interest.

I think it’s a mistake to link Bitcoin’s price action since the October highs with headlines. In my view, the selloff was driven by investors who didn’t want to sell but had to anyway.

I’m talking about forced liquidations here, with figures like the $1B on Feb. 5 alone. Overall, the total crypto market has lost $2T in value since the October peak, and U.S. spot Bitcoin ETFs saw over $3B in outflows in January alone.

So, are the Bitcoin lows behind us?

To answer yes, I need to see clear signs of stabilization (i.e., the market runs out of forced sellers). One of the key metrics to monitor is the net inflows in Bitcoin ETFs. I think we could see a spike in inflows if the macro risk-on move returns.

I would keep a close eye on the most speculative stocks in the U.S. public markets (I’m talking about story stocks with near-zero fundamentals, like quantum or meme stonks) and see if they turn around over the next few weeks (both in price and relative volume). To me, that would be the clearest signal that risk appetite is back, and in that kind of environment, Bitcoin usually outperforms.

Mott Capital Management [https://seekingalpha.com/author/mott-capital-management]: In my opinion, Bitcoin and that asset class are worthless because they have no intrinsic value and, given how many exist, appear easy to create. Additionally, they do not even function as a hedge, so it is unclear what purpose they serve other than speculation. The only factor that seems to consistently drive their price is liquidity, and based on the conditions that brought us here, liquidity is unlikely to improve anytime soon. That does not mean Bitcoin disappears, but it does mean the path higher is unlikely to be easy.

_Popular Crypto Assets: Bitcoin (BTC-USD [https://seekingalpha.com/symbol/BTC-USD]), Ethereum (ETH-USD [https://seekingalpha.com/symbol/ETH-USD]), Ripple USD (XRP-USD [https://seekingalpha.com/symbol/XRP-USD]), and Solana (SOL-USD [https://seekingalpha.com/symbol/SOL-USD])._

_Bitcoin-backed ETFs: (IBIT [https://seekingalpha.com/symbol/IBIT]), (ARKB [https://seekingalpha.com/symbol/ARKB]), (GBTC [https://seekingalpha.com/symbol/GBTC]), (BRRR [https://seekingalpha.com/symbol/BRRR]), (BTCO [https://seekingalpha.com/symbol/BTCO]), (HODL [https://seekingalpha.com/symbol/HODL]), (BTCW [https://seekingalpha.com/symbol/BTCW]), (FBTC [https://seekingalpha.com/symbol/FBTC]), (BITB [https://seekingalpha.com/symbol/BITB]), (EZBC [https://seekingalpha.com/symbol/EZBC])._

MORE ON BITCOIN USD, ETHEREUM USD

* This Week's Market Wrap: Crypto Shock, Software Slump, And The AI Repricing Cycle [https://seekingalpha.com/article/4867373-this-week-market-wrap-crypto-shock-software-slump-ai-repricing-cycle]
* Bitcoin To 0? Challenging Burry's Thesis [https://seekingalpha.com/article/4867316-bitcoin-to-0-challenging-burrys-thesis]
* Is Bitcoin Digital Gold Or Fool's Gold? The Market's Still Deciding [https://seekingalpha.com/article/4867105-bitcoin-digital-gold-fools-gold-markets-deciding]
* Crypto-linked stocks rebound as bitcoin, ether rout ease [https://seekingalpha.com/news/4548629-crypto-linked-stocks-rebound-as-bitcoin-ether-rout-eases]
* Bitcoin and software stocks have been more correlated in the last months – BTIG’s Krinsky [https://seekingalpha.com/news/4548623-bitcoin-and-software-stocks-have-been-more-correlated-in-the-last-months-btig-s-krinsky]