Wall Street Continues to Sell Off, How Low Will Bitcoin Drop?

During the first week of November, the sentiment in the cryptocurrency market was very negative.

Bitcoin had plunged to a new low below the "10.11" crash, failing to hold the $100,000 key level, and even dropping below $99,000, marking a new low for the past six months, while Ethereum hit a low of $3,000.

The total amount liquidated in the entire network in 24 hours exceeded $2 billion, with long positions losing $1.63 billion and short positions being liquidated at $400 million.

Data Source: CoinGlass

The most disastrous was a long position for BTC-USDT on the HTX trading platform, with a single liquidation of $47.87 million, topping the global liquidation list.

No doubt, the downward trend is more or less for some reasons. We will analyze it in hindsight.

Internal Industry

For two consecutive days, there were incidents in the projects. On November 3, the well-known DeFi project Balancer was hacked for $116 million due to a code issue. Balancer is part of DeFi infrastructure, even older than Uniswap, and such a code problem has had a significant impact on the industry.

On November 4, a yield farming platform named Stream Finance collapsed. The official statement mentioned a loss of $93 million, but it was not clear how the loss occurred, and the community speculated that it might be related to the "10.11" crash day.

In the crypto world, money is scarce, and another $200 million has been lost in these two days.

Macro Perspective

Looking at the global capital markets, on November 4, the entire world was experiencing a downturn. Stocks in Japan and South Korea, which had hit new highs, were also falling, and pre-market trading in U.S. stocks was also down.

Firstly, there was a rate cut. Last Wednesday, the Federal Reserve spoke, and it seems likely that a rate cut in December is confirmed, implying that there is no urgent need for a rate cut.

Moreover, there was a net outflow in ETFs. Last week, Bitcoin's U.S. stock ETF witnessed a net outflow of $802 million, and on Monday, November 3, there was another net outflow of $180 million.

On November 5, there was another event as the U.S. Supreme Court was set to hold oral arguments in the "Tariff Trial," examining the legality of Trump's imposition of global tariffs. The uncertainty lies in the possibility that if the final ruling is against Trump, the tariffs could be lifted, leading to new policy adjustments thereafter.

The U.S. federal government shutdown has entered its 35th day, tying the record for the longest shutdown in U.S. history. The government closure has led to institutions hedging high-risk assets, triggering a sell-off. This may be one of the core reasons for the recent plunge.

A previous article by Wall Street News noted that the shutdown forced the U.S. Treasury to increase its balance in the Federal Reserve's General Account (TGA) from around $300 billion to over $1 trillion in the past three months, marking a nearly five-year high. This process is equivalent to withdrawing over $700 billion in cash from the market.

This massive liquidity drain has a tightening effect comparable to multiple interest rate hikes. Key funding rate benchmarks are signaling distress. According to Bloomberg, the Secured Overnight Financing Rate (SOFR) surged 22 basis points on October 31, well above the Federal Reserve's target range, indicating that the market's actual cost of funding did not decrease with the Fed's rate cuts. Additionally, the usage of the Fed's Standing Repo Facility (SRF) is nearing historical highs.

Spot ETF Continues to Bleed

The bleeding of ETFs is actually more severe than imagined.

From October 29 to November 3, IBIT, the world's largest Bitcoin spot ETF under BlackRock with a 45% market share, experienced net outflows of $715 million over four trading days, accounting for over half of the total $1.34 billion outflows in the U.S. Bitcoin ETF market.

Looking at the entire week from October 28 to November 3, IBIT saw net outflows of $403 million, representing 50.4% of the total $799 million market outflows, with a single-day outflow of $149 million on October 31, setting a record high for daily outflows in the industry.

On November 4, BlackRock's Coinbase Prime custody address also saw on-chain relocations of 2043 BTC and 22,681 ETH, and the market speculates that ETF holders are still actively selling off crypto assets.

Although IBIT's assets under management currently remain between $950 and $1,000 billion, holding around 800,000 BTC (representing 3.8% of the total supply), the four-day outflows correspond to approximately 5,800 BTC, accounting for 0.7% of its holdings.

Despite the relatively small percentage, this is a leading industry player, and the demonstration effect is evident.

Looking at other major Bitcoin spot ETFs, the top five are BlackRock's IBIT, Fidelity's FBTC, Grayscale's GBTC, Bitwise's BITB, and ARK's partnership with 21Shares on ARKB.

Fidelity's FBTC saw a net outflow of $180 million during the same period, accounting for 0.7% of its size, which is considered moderate; Grayscale's GBTC, after the fee reduction, has seen a slowdown in redemptions, with outflows of $97 million this week; the relatively smaller funds, BITB and ARKB, had weekly changes around $50 million.

This wave of redemptions is fundamentally driven by a sudden drop in investor risk appetite, synchronized with macro high-interest rate expectations and Bitcoin's technical breakdown.

On-chain Long-Term Holders Also Engaging in Massive Profit-Taking

What's even more intense than ETFs are actually the old-school on-chain players.

In the past 30 days (from October 5 to November 4), wallets held by individuals for over 155 days, commonly known as "Long-Term Holders" (LTH), collectively sold about 405,000 BTC, accounting for 2% of the circulating supply. Based on the average price during the period of $105,000, this amounted to over $40 billion in profits taken.

Currently, these individuals still hold approximately 14.4 to 14.6 million BTC, representing 74% of the total circulating supply, making them still the largest supply side in the market. The issue is that their selling pace perfectly aligns with price movements: after Bitcoin hit a historical high of $126,000 on October 6, profit-taking accelerated significantly; on the day of the "10.11" flash crash, 52,000 coins were sold; towards the end of October and early November, coinciding with four consecutive ETF outflows, daily sales were consistently above 18,000 coins.

From on-chain data, it is evident that the main players causing the price drop are wallets holding between 10 and 1,000 coins, the "middle-aged" wallets, who bought in 6 months to a year ago and are now sitting on around 150% profits. Conversely, the whale wallets holding over 1,000 coins are actually slightly increasing their holdings, indicating that the major players are not bearish; it's the medium-sized profit-takers cashing out.

Comparing to history, in March 2024, LTH sold 5.05% in a single month, causing a 16% drop in Bitcoin's price; in December last year, a 5.2% sell-off led to a 21% drop. This October, a 2.2% sell-off resulted in a mere 4% decline, which can be considered mild.

However, when faced with simultaneous ETF and on-chain bleeding, the combination of these two forces becomes unbearable for the market.

Assessing the Bottom of the Downtrend

glassnode has released market insights stating that the market continues to struggle above the short-term holding cost basis (around $113,000), a key battleground where bulls and bears are clashing. If it fails to regain stability above this level, it may further retrace towards the realized price by active investors (around $88,000).

CryptoQuant CEO Ki Young Ju last night made a series of on-chain data statements indicating that the average cost of a Bitcoin wallet is $55,900, which means holders are averaging a profit of about 93%. On-chain inflows remain strong. Price unable to rise due to weak demand.

10x Research CEO Markus Thielen stated after the market's decline that Bitcoin is approaching the support line since the crash on October 10. If it falls below $107,000, it could dip to $100,000.

Chinese crypto KOL Ban Mu Xia today publicly stated that "the traditional 4-year cycle bull market has ended, Bitcoin will gradually fall to $84,000, then experience several months of complex oscillation, and by the end of next year and early the following year, it will follow the stock market bubble to surge to $240,000."

Currently, the only good news seems to be that historically, Bitcoin has seen an increase in November.

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