Don't call it a comeback

All the crypto bros anxiously checking their digital wallets are having a better day today than they were yesterday.

Monday brought a brutal selloff across digital assets, with bitcoin tumbling 6%. Yesterday’s low marked a 20% drop from bitcoin’s November high, and a roughly 30% drop since its October record as the digital asset fell below its critical level of $85,000.

Today, bitcoin gained 6.63% and climbed back above $91,000, while ethereum, solana, and even dogecoin all recovered—but the crypto carnage may not be over yet.

What’s causing the downturn?

Zooming out, bitcoin has been in a rut for months as investors move away from risk-on assets, which triggered huge sell-offs in the crypto market, driving prices down.

But the immediate catalyst for yesterday’s downturn was Japan’s central bank indicating that it would likely hike rates, which would unwind the so-called “yen carry trade” that provides liquidity to many bitcoin investors.

While the crypto king has shed all of its year-to-date gains, bitcoin stocks have been hit particularly hard as well. Just look at Michael Saylor’s Strategy, which surged last year when it rebranded as a bitcoin play for the stock market—but has now plummeted roughly 60% from its recent high.

Winter is coming

While today’s recovery was promising, if we really are veering into a crypto winter, the damage could just be starting.

For one, the bitcoin funding rate, an indicator of sentiment, turned negative—meaning that there’s more bearish futures bets than bullish ones, according to Bloomberg. Exchanges are also seeing balances of stablecoins rise, which indicates that investors are keeping their money in a more stable asset instead of buying the dip.

But some experts say we’re not technically in a bitcoin bear market quite yet. “This decline comes even as bitcoin’s fundamentals continue to strengthen: We’re seeing rising institutional and sovereign adoption, greater regulatory clarity, and a network that has never been stronger,” Sam Callahan, director of bitcoin strategy and research at OranjeBTC, told CNBC.

If there’s one thing we know about bitcoin evangelists, though, it’s that trading blind hype for a measured, balanced perspective is not exactly their expertise.—LB