Bitcoin fell below the $60,000 threshold on Thursday, extending its prolonged decline as investors recalibrated risk appetite amid the Federal Reserve's increasingly hawkish stance and sustained enthusiasm for artificial intelligence-linked investments. The world's largest cryptocurrency briefly plunged 5% during U.S. trading hours to around $58,000, its lowest level since 2024, before recovering to trade near $59,300, down roughly 0.2% over the prior 24 hours.
The sell-off rippled across the broader digital asset market. Ether declined approximately 0.8% to about $1,560, while Solana and Dogecoin posted similar losses.
Fed Outlook and AI Trade Reshape Sentiment
Markets continue to digest the capital demands of the artificial intelligence boom alongside the Federal Reserve's policy shift under new Chair Kevin Warsh. Policymakers have signaled that the next move is likely a rate increase rather than a cut, with markets increasingly pricing in tighter monetary policy sooner than previously expected.
This changing rate outlook has undermined a key pillar that supported Bitcoin's earlier rally. “Through 2024 and 2025, part of the case for Bitcoin as an institutional allocation rested on an easing cycle ahead; a forecast of tightening inverts that premise,” said Deutsche Bank research analyst Marion Laboure. “When the risk-free rate rises, the opportunity cost of holding a non-yielding asset increases, and Bitcoin trades as a liquidity-sensitive risk asset rather than a safe haven.”
Bitcoin's weakness has coincided with substantial capital flows toward AI beneficiaries. The cryptocurrency's decline of roughly 43% over the past year contrasts sharply with a 158% gain in the PHLX Semiconductor Index, home to many leading chipmakers. This dynamic is part of a broader rotation where investors favor AI-driven equities over crypto, as highlighted in recent analysis of the AI-driven stock rally diverging from the sluggish U.S. economy.
Derivatives Data Points to Potential Short Squeeze
Despite Bitcoin's sharp decline, derivatives indicators suggest the possibility of a short-term rebound. Liquidation heatmaps show a concentration of liquidation risk above current prices rather than below, implying that additional downside may not trigger widespread forced selling. Instead, traders with short positions could become vulnerable if prices move higher.
Open interest has risen approximately 0.28% over the past 24 hours even as Bitcoin's price declined, indicating that traders have largely maintained bearish bets rather than exiting positions. Funding rates have also turned negative, suggesting market participants are paying a premium for downside exposure.
Order book data from CoinGlass shows approximately 6,900 Bitcoin, valued at around $409 million, sitting in bids between current prices and $50,000. In comparison, only about 1,570 Bitcoin, worth approximately $93 million, are positioned in resting sell orders between current levels and $70,000.
Bitcoin Faces Competition for Investor Capital
Bitcoin's decline has accelerated alongside persistent outflows from spot Bitcoin exchange-traded funds. The funds have recorded six consecutive weeks of withdrawals totaling approximately $6 billion, their largest outflow streak in two years. This trend underscores the shifting sentiment as investors rotate capital into AI-related assets and away from crypto.
Analysts have also questioned the durability of earlier narratives that fueled Bitcoin's advance. “We were rightly skeptical about this so-called ‘Sell America Trade,’” said Ed Yardeni, founder and president of Yardeni Research. “As tariff concerns eased and recession fears abated, the debasement narrative lost momentum. Its credibility might have ended last Wednesday, when Fed Chair Kevin Warsh made price stability his top priority at his first policy meeting.”
Jonathan Krinsky of BTIG cautioned that market narratives can change rapidly. “When something is at an all-time high, the narrative and fundamental thesis is often very enticing and hard to dispute,” he said.
Laboure noted that Bitcoin's evolution as an asset class has changed how investors view its price swings. “Bitcoin is not disappearing; it is maturing into an institutional asset whose price is set by fund flows, Fed expectations, competing risk themes, and legislative outcomes,” she said. “Volatility, as ever, is not a bug but a feature.”
For context, the broader market environment has seen gold slip below $4,110 as rising yields counter safe-haven demand, while Bitcoin previously stalled near $62K amid oil surges and Fed caution.
This article is for informational purposes only and does not constitute financial advice.
