- BTC-USD -1.87%
Deutsche Bank strategists say investor belief is an important factor for bitcoin valuations right now. - Getty Images One major problem for beleaguered bitcoin right now: Investor belief is crucial for continued gains, and right now the faithful are wavering.
That’s according to Deutsche Bank strategists who say bitcoin’s “portfolio integration is being tested,” a move that could be temporary or drag on. And the sentiment-driven selling they’ve been seeing has put their “so-called “Tinkerbell effect” theory from 2021 back in the spotlight — that is, that bitcoin valuations rise and fall based on what investors think it’s worth.
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The price of bitcoin BTCUSD, which just suffered its worst weekly loss since late February, edged higher over the weekend, but was down 1.6% to $86,022 on Monday. Bitcoin has dropped 31% since its Oct. 6 record high of $126,272.
- Strategists Marion Laboure and Camila Siazon cite a handful of reasons for the selloff, the first being a broader drop in stocks and risk sentiment, showing that the crypto “has yet to function reliably as a defensive hedge.” Uncertainty over whether the Fed will continue easing this year has also affected bitcoin and may drive more declines if that continues, they warn.
Regulatory uncertainty — with momentum stalling since summer — is hindering bitcoin’s portfolio integration. Finally, institutional outflows have picked up, causing thinning liquidity, with several bitcoin exchange-traded funds taking hits, while long-term holders of the cryptocurrency have been taking profits, which hasn’t been observed in previous crashes.
As for whether it can stabilize as the faithful wobble, Deutsche Bank strategists say the jury is out. “Unlike prior crashes, driven primarily by retail speculation, this year’s downturn has occurred amid substantial institutional participation, policy developments, and global macro trends,” they said.
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