Is This the Dip to Buy? Bitcoin’s Stress Signals and What’s Next

On Thursday, February 5th, Bitcoin (BTC -10.75%) dropped to $65,000, revisiting levels not seen in over 15 months. This move took the world’s leading cryptocurrency to a critical support zone as the broader market sell-off accelerated.

The last time BTC reached this level was prior to Donald Trump’s victory in the U.S. presidential election. With the recent price action, Bitcoin has now erased all the gains made during his presidency.

As BTC/USD trades near $65,000, its YTD loss now stands at approximately 25%, while it is down over 30% over the past year. More importantly, Bitcoin is now down 48.5% from its all-time high (ATH) of $126,210, set on October 6.

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Bitcoin’s price action, according to analysts at crypto trading firm QCP Capital, “remains fragile,” with the current momentum continuing to “point lower.” With the upside “constrained near recent resistance levels,” the broader markets remain “exposed to further liquidation-driven moves.”

The crypto asset’s fall this week comes amid a wider sell-off across markets, including stocks and precious metals.

The S&P 500 has dropped to 6,809. But despite the fall, SPX is now struggling to remain in the green for the year. Just last week, the stock market index surged past the 7,000 mark to new highs.

The sell-off in the US stock market has been driven by investor concerns about the ever-increasing expenditure on artificial intelligence (AI) infrastructure build-outs. While the industry continues to spend billions, questions are being raised about its sustainability, with fears that product demand and revenue may fall short of industry projections.

When it comes to gold, the yellow metal fell to $4,400 per ounce on Monday but soon rebounded to $5,062, only to drop back to $4,845 on Wednesday. Much like the stock market, bullion also hit a new ATH of $5,600 just last week and is still up 12.1% YTD.

As for silver, it has experienced a severe drop from the $121 peak hit on Jan. 29, falling to $76.06 today. XAG/USD now trades at $76.06, up about 18.5% YTD and reflecting the extreme volatility in precious metals.

So, while Bitcoin’s sell-off isn’t a singular event, at least this week, its recovery has been weaker than that of precious metals.

And while market participants have been hoping for Bitcoin to catch up with gold, so far it has been just that, a hope, with the crypto asset only showing weakness since late last year. And this sustained market fragility has investors scared and cautious.

Fear Takes Over as Price Leads Sentiment

As Bitcoin prices fall to levels not seen since late 2024, market sentiment has taken a sharp turn. According to the Crypto Fear and Greed Index, there is currently ‘extreme fear’ in the market, with a reading of 14.

With sentiments turning fearful, does it mean it’s time to be greedy?

When Warren Buffett famously said, “Be fearful when others are greedy, and greedy when others are fearful,” he was talking about contrarian investing and the cyclical nature of market psychology.

What usually happens is that when most investors are euphoric, prices tend to be overextended, and conversely, when fear is widespread in the market, assets may be undervalued. But the way investors behave is exactly the opposite; they follow herd mentality.

Near market tops, investors tend to become greedy. Seeing others make money, they rush to buy in when they should be taking profits. Meanwhile, near market bottoms, investors sell their assets in a panic when they should be taking advantage of the low prices and deploying capital for the long term.

The phrase “be fearful when others are greedy, and greedy when others are fearful,” holds true as we have seen this play out time and again, not only in crypto but in traditional markets as well. From the dot-com bubble to meme stocks and the recent AI mania, traditional markets have repeatedly experienced narrative-driven euphoria that ultimately led to deep drawdowns.

Meanwhile, crypto has gone through multiple such cycles. Every four years, the Bitcoin price makes new all-time highs before plummeting. So, by recognizing behavioral biases like herding and panic selling, one can actually be profitable.

However, it’s crucial to note that parsing market sentiments isn’t easy. While the Crypto Fear and Greed Index has historically spiked during tops and plunged near troughs, it’s not really reliable.

For instance, on Jan. 13, the index had a reading of 26, pointing to ‘fear,’ before it jumped to 61 on Jan. 15, reflecting ‘greed’ among participants before turning to ‘fear’ soon after, when it fell right back to 20 on Jan. 22. All of this occurred in a span of ten days.

But more importantly, these changes in sentiment came as Bitcoin’s price fluctuated from $91K to $97K to $88K. So, it was prices that were driving human sentiments.

This was confirmed by a new study we recently shared: sentiments do not drive returns; they react to price. Price movements influence how fearful or greedy investors feel, which in turn causes changes in the index.

When Bitcoin falls, fear spikes, and when prices recover, greed rises. So, this emotional shift reflects what has already happened, not a predictive sign of what will happen next. This means that changes in sentiment do not offer any forecasting edge for Bitcoin returns, and one can’t rely on sentiment signals alone to make investment decisions.

Now the question is, is this current market dip a buying opportunity?

Is the 48% Drawdown a Strategic Entry Point?

A good buying opportunity is when you can get your hands on an asset at cheap prices. For Bitcoin, that typically means buying during periods of extreme pessimism, when prices have fallen deeply below prior cycle highs, on-chain metrics signal undervaluation, and sentiment is overwhelmingly bearish.

Bitcoin has already gone down by 48.5%, so it seems like a good buy. But if we look at past cycles, not really. This drawdown is still moderating toward the severity of prior full bear markets.

During the earliest crypto winter, Bitcoin experienced a drawdown of about 90%, which then moderated to the 80% range during the 2013-2015 and 2017-2018 bear market cycles. Then, during the most recent cycle, Bitcoin had a 77% drop, falling from a $69,000 peak in Nov. 2021 to $15,500 in Nov. 2022.

This shows that Bitcoin’s drawdowns have been progressively shallower over time, but that doesn’t rule out more pain ahead. We can very well see a 65% drawdown, which would push the BTC price to about $45K, while a 70% retracement from ATH could push us below $40K.

Source: @CryptoParadyme

While in line with Bitcoin’s history, analysts believe that we may not get such a deep pullback this time. Matt Hougan, the chief investment officer of crypto manager Bitwise, is among those who believe “we’re closer to the end than the beginning.”

In an X article, Hougan argued that the downtrend didn’t start late last year but at the beginning of it, and that it was the US Spot Bitcoin ETFs that made it seem like 2025 was a bull run.

“As a veteran of multiple crypto winters, I can tell you that the end of those crypto winters feels a lot like now: despair, desperation, and malaise. But there is nothing about the current market pullback that’s changed anything fundamental about crypto,” he concluded. “I think we’re going to come roaring back sooner rather than later. Heck, it’s been winter since January 2025. Spring is surely coming soon.”

Source: @BobLoukas

A recent analysis by Alex Thorn, Galaxy Digital’s Head of Research, meanwhile, sees the cycle bottom around $60K.

In his analysis, Thorn noted structural weakness in the cryptocurrency’s price and a lack of near-term catalysts to support upward movement. Not just that, but narratives like “debasement hedge trade” are also working against the crypto asset, as it fails to trade alongside gold and silver, which surged to their respective ATHs last week, he added.

This means Bitcoin can be expected to trade lower in the near future. “While it could see chop around the historic max discount-to-ETF-cost-basis of -10% (currently around $76K),” Thorn stated that “there is a significant chance that BTC drifts towards the bottom of the supply gap ($70K) and then potentially tests the realized price ($56K) and 200-week moving average ($58K) over the coming weeks and months.”

Pointing to past data, he noted that whenever Bitcoin has dropped at least 40% from its peak, it has extended those losses to 50% in every instance except one.

According to Thorn’s analysis, data from the previous bull markets also indicates that when the asset’s price drops below the 50-day moving average, which Bitcoin has already done in November, then the cryptocurrency falls further to the 200-week moving average, which means a drop to $58,000 is likely in Bitcoin’s future.

But “if Bitcoin falls lower towards the 200-week moving average or the realized price, these levels should present strong entry points for long-term investors as they have in the past,” he concluded.

Analyzing Liquidity and Institutional Outflow Signals

The entire crypto industry is currently being painted red, with the total digital asset market cap falling to $2.5 trillion. While the relentless selling shows no signs of stopping, long-term profit-taking is now beginning to weaken.

“2024 and 2025 saw more profit-taking in dollar terms by long-term holders than any other time in Bitcoin’s history,” said Thorn. While that “distribution has finally abated,” more long-term holders may be waiting for prices to rise before selling. “Nonetheless, the recent decline in long-term holder realized profit taking is notable, and should signal we are closing in on a bottom,” he added.

Technical indicators also indicate some short-term reprieve. For instance, the relative strength index (RSI) is signalling that Bitcoin is oversold. The indicator has fallen below 30, suggesting intense selling, so a relief bounce may come soon. But instead of a bull rally, it could just be a small bounce in a broader bearish trend, as Bitcoin has seen during past bear markets.

A weekly crypto report by Bitwise also shows that the recent dip in Bitcoin’s price has led to the two-year rolling MVRV z-score falling to the lowest level ever recorded.

The Market-Value-to-Realized-Value z-score measures the deviation in Bitcoin’s market value from its investors’ cost basis, adjusted for historical volatility. This metric is now “signalling fire-sale valuations” for the crypto king.

Despite this apparent undervaluation, the Bitcoin market remains clearly stressed, as evidenced by weak price action and declining trading volume.

This weakness is driven by several factors, including persistent capital outflows. Global Bitcoin ETPs recorded $1.35 billion in net outflows last week, driven primarily by US spot BTC ETFs. These products have been engaged in aggressive selling since October last year, when Bitcoin made a new ATH.

So far this year, Bitcoin ETFs only 8 days of net inflows, as per data from Farside. Ever since Jan. 16, these products have recorded $3.2 billion in net outflows.

Yet another major stressor has been macro tightening. As the Federal Reserve remains cautious on interest rate cuts, risk assets are bearing the brunt of this uncertain rate environment.

On top of that, the nomination of Kevin Warsh as the new Federal Reserve Chair has further exacerbated this uncertainty.

The nomination of a former Fed governor to replace Jerome Powell when his term ends in May is sending mixed signals to the market, which is seeking a clear stance from Warsh. This is evident in the rate expectations, which have largely remained unchanged since his nomination, with 90% of market participants expecting rates to stay steady at the next meeting on March 18, according to CME Group’s FedWatch tool.

Recently, Michael Burry, of The Big Short fame, also warned of tightening liquidity and growing vulnerability across risk assets, which, he said, reflect structural pressure. “Sickening scenarios have now come within reach,” he said.

Bitcoin, he believes, doesn’t function like a safe-haven investment as gold and silver do, which have benefited during times of dollar devaluation, inflation worries, and geopolitical tensions.

And if Bitcoin continues its free-fall, Burry noted in his recent Substack post, that it could lead to heavy losses across institutions holding the asset, tighten capital access for MicroStrategy’s Strategy, which has been relentlessly buying BTC for the last few years, and prompt more aggressive risk management.

Corporate treasuries and institutional holders won’t provide durable support either, Burry said, noting that such assets are marked to market and can be sold quickly.

According to him, a drop to $60K could trigger a crisis for MicroStrategy, whose average Bitcoin purchase price has been about $76,052, while another drop to $50K could push miners into bankruptcy. That would trigger forced selling of reserves, which would then spill over into the tokenized and physical metals markets, the analyst said.

– Burry

Yet another major risk for Bitcoin is that of quantum computing. While it may not seem like an immediate concern, investor perception says otherwise. Just last month, Jeffries’ global head of equity strategy, Christopher Wood, removed a 10% Bitcoin allocation from his model portfolio due to the threat posed by quantum computing.

“Quantum has been the big excuse for people,” said Galaxy CEO Mike Novogratz during the earnings conference call on Tuesday. “I think in the long run, quantum will not be a huge issue for crypto. It’ll be a big issue for the world, but crypto, Bitcoin especially, will be able to handle it. But that’s been the excuse (for selling).”

Crypto projects like Ethereum (ETH -10.31%) and Solana (SOL -11.28%) have made post-quantum security their priority.

Beyond the Chart: Adoption, Regulation, and the GENIUS Act

As several market stressors weigh heavily on crypto prices, what makes the current dip a potential opportunity is the underlying market adoption. Prices may be down, but usage, infrastructure, and real-world integration continue to increase.

This includes the landmark Genius Act, passed last year, and the CLARITY Act, currently under negotiation in the Senate.

While passage of crypto market structure legislation could act as a near-term exogenous catalyst, the odds of passage have diminished in recent weeks amid gridlock driven by a clash between the banking industry and crypto firms over paying interest on stablecoin holdings.

The stablecoin market is rapidly expanding, surpassing $300 billion. It is also being supported by the new regulatory framework (GENIUS Act), which allows banks and non-bank entities to develop faster, more efficient, and potentially cheaper payment systems, fostering growth in the digital economy.

Then there’s the institutional adoption of cryptocurrency. While spot crypto ETFs are currently recording outflows, institutions are increasingly allocating to crypto as part of a diversified strategy, indicating strategic buying rather than speculation.

From hedge funds to family offices, pension funds, endowment funds, and sovereign wealth funds, institutional participation in crypto has increased significantly over the last few years. In fact, they were the primary drivers of price this cycle.

And while the ETF rush is over, trader Bob Loukas believes, these products would still “enable the next cycle” by allowing “a massive retail flow that puts the 2017 rush to shame.” Demand, after all, is cyclical and ETFs now provide “a more frictionless conduit.”

The tokenization trend is another major indicator of crypto maturation, having captured the attention of institutions such as BlackRock, JPMorgan, and Franklin Templeton. Tokenization of real-world assets has surpassed $24 billion, recording a tenfold increase in less than two years.

Against this backdrop, the 40% drop in Bitcoin prices makes for an attractive choice.

Though it must be noted that full market cycles tend to see much deeper retracements before cycle lows are established, so, right now, we might only be seeing an intermediate retracement rather than a full structural washout.

Historically, Bitcoin bear markets last about 12 months, which puts the current one at about one-third complete. But with the drawdown being faster than usual, market participants are expecting the bottom to come sooner than in past cycles. This could mean that instead of the last quarter of this year, Bitcoin price may find its bottom this summer, a quarter early. But that remains to be seen.

While Bitcoin’s drawdown may not look like a screaming buy right now, it is certainly an invitation to keep an eye on it and slowly build the portfolio for the long term.

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