Investors' confidence was shaken by a huge shock in the digital currency market.

Cryptocurrency continued to be violently sold off on Monday. Bitcoin fell below 0.05 million dollars during the day. At one point, it plummeted 16%, while Ethereum fell 23% during the day, the biggest decline since 2021.

Earlier this year, as the US Securities Regulatory Commission (SEC) approved the listing of two major cryptocurrency spot ETFs, and US presidential candidate Trump also expressed support for cryptocurrencies, Bitcoin showed signs of decoupling from stock market fluctuations, and investors gradually became optimistic about Bitcoin's prospects.

According to data compiled by Bloomberg, two weeks ago, the 30-day correlation coefficient between Bitcoin and the MSCI World Stock Index was -0.2. It has rarely turned negative over the past four years, which means that the Bitcoin market and global stock markets have begun to turn negative.

But this “optimistic narrative” was severely punched in the face by yesterday's collapse. As concerns about the recession intensified, the sell-off in global stock markets intensified, Bitcoin's correlation with global stock markets increased again, and geopolitical tension fueled investors' unease.

Yesterday alone, Bitcoin almost recovered its gains in a year and a half, down 20% from the previous record high.

Rich Rosenblum, co-CEO and co-founder of digital asset investment firm GSR, commented:

“Every 1% drop in the market takes a toll on investor confidence. As far as cryptocurrencies are concerned, Bitcoin's confidence is more elastic than any other market in the world due to its Van Buren commodity (a commodity whose demand is proportional to price).”

Weak employment data is further “making matters worse” for the cryptocurrency market.

Last week's non-agricultural data fell short of expectations. The unemployment rate soared to a new high in nearly three years, triggering the recession indicator “Sam's Rule”. Risk assets, including cryptocurrencies, suffered a severe setback. Bitcoin spot ETFs experienced the biggest outflow of capital in nearly three months on the same day.

Virginie O'Shea, founder and CEO of Firebrand Research, said holding Bitcoin as a strategic reserve is a “crazy idea”:

“If you want asset reserves, you need to look for something relatively stable in an unstable market, and cryptocurrencies are just the opposite.”

Will the sharp decline continue?

There are opinions that Bitcoin may decline further in the future.

Dessislava Aubert, senior analyst at data platform Kaiko, said:

“We are likely to see further declines as market makers may reduce their risk exposure to avoid toxic capital flows, and we have observed similar declines in the top ten alternative coins.”

Aubert said that since the beginning of August, Bitcoin's 1% market depth (24-hour average trading volume within the current price range of 1% change) on major cryptocurrency exchanges such as Binance, Bybit, Bitfinex, and Coinbase has dropped by more than 40%, which means that sell-offs are weakening market liquidity.

However, there are still industry insiders who are optimistic about the cryptocurrency market.

Zaheer Ebtikar, founder of cryptocurrency fund Split Capital, said:

“It's a transition. Like TradFi (traditional finance), [Bitcoin's position] is moving from short-term derivatives to long-term holdings.”