Behind Bitcoin's crash: Fed hawkishness + regulatory wrangling + institutional exodus + holders fleeing—Is there any way out under these five major blows?

Bitcoin plunged from a peak of around $125,000 in early October to about $80,000 in the current crash, a drop of nearly 35%. Over the past month, the total market capitalization of the crypto market evaporated by an astonishing $1 trillion, a decline of 24%. On November 28th, according to ZF Trading Desk, Deutsche Bank stated in its latest research report that this drop reflects combined pressures at both macro and micro levels: **broad declines in risk assets, the Federal Reserve turning hawkish, stalled regulatory progress, institutional capital outflows, and long-term holders taking profits.** Bitcoin has now rebounded to above $90,000, equivalent to the price in May 2025. However, its volatility surged from a low of 20% in August to 39%, and its correlation with the NASDAQ and S&P 500 indices also rose to 46% and 42%, once again showing high-risk asset characteristics rather than serving as a safe haven. Deutsche Bank analysts noted that **this “Tinkerbell effect” indicates Bitcoin’s valuation still largely depends on belief-driven adoption.** Whether Bitcoin can stabilize and recover next remains highly uncertain. According to Deutsche Bank, unlike in the past, this drop occurred under the complex backdrop of deep institutional involvement, close macroeconomic linkages, and unresolved key policy issues. **Recovery depends on regulatory clarity, stablecoin adoption, and central bank support, with the outlook full of uncertainty.** ## Market Sentiment Reversal—Safe Haven Aura Fades, Rises and Falls with Tech Stocks The narrative of Bitcoin as a safe haven asset was thoroughly disproven in this downturn. The report points out that Bitcoin sell-offs occurred in sync with declines in the U.S. stock market and other risk assets. Amid rising trade tensions, a government shutdown, and concerns over AI sector valuations, Bitcoin failed to show independent movement and instead plunged alongside high-growth tech stocks. Data shows this correlation is rapidly strengthening. Since 2025, the daily average correlation between Bitcoin and the NASDAQ 100 Index has reached 46%, and with the S&P 500 Index, it has risen to 42%. By contrast, traditional safe haven assets like gold and U.S. Treasury bonds have far outperformed Bitcoin in recent months. For example, on October 10th, when the Trump administration threatened to impose a 100% tariff on Chinese goods, Bitcoin plunged 5.6% that day, while gold prices rose 1.03%. Deutsche Bank’s research stated: **This clearly shows that when macro uncertainty increases, the market tends to sell Bitcoin rather than buy it for hedging.** ## Fed’s Hawkish “Curse”—Rate Hike Expectations and the End of Liquidity Feast The Fed’s monetary policy is a sword of Damocles hanging above Bitcoin. The report emphasizes that **Bitcoin prices are strongly negatively correlated with Fed interest rates. Historical data shows that during the Fed’s rate hike cycle in 2022, Bitcoin and interest rate correlations reached a staggering -90%.** Although the Fed lowered rates by 25 basis points in the October FOMC meeting, Chair Powell’s hawkish comments—“A December rate cut is far from certain”—directly triggered market panic. Following Powell’s statements, Bitcoin prices fell 1.22% on October 29. Later, on November 4, Fed Governor Cook reiterated that a December rate cut was not guaranteed, causing Bitcoin to plunge over 6% that day. Deutsche Bank noted that as of 2025, Bitcoin returns have had a correlation of -13% with the Fed’s interest rates. As long as expectations of easier monetary policy are suppressed, Bitcoin will remain under pressure. ## Regulatory Vacuum Returns—Stalled Legislative Progress, Market Sentiment Hit The regulatory shoe has yet to drop, stifling market confidence. The report notes that the "Digital Asset Market Clarity Act" (CLARITY Act) passed by the U.S. House of Representatives in July was once seen as a major positive, sparking a rally in the crypto market. However, the bill, which aims to clarify regulatory frameworks, is now deadlocked in the Senate Banking Committee. Republican Senator Tim Scott pointed out that due to a government shutdown and party disagreements over DeFi identity verification and AML controls, the bill is unlikely to be signed before 2026. **Deutsche Bank believes the loss of regulatory momentum directly impedes institutional investor entry and deepening market liquidity.** The report’s data shows Bitcoin’s volatility has rebounded from a low of 20% in August to 39%. Meanwhile, U.S. retail crypto usage dropped from 17% in July to 15% in October, indicating cooling participation. ## Institutional Exodus and Liquidity Drought—ETF Flows Reverse, Market Depth Plummets Institutional funds that once drove Bitcoin’s bull market are now fleeing the other way. The report reveals a dangerous negative feedback loop: **price declines lead to a liquidity drought, which in turn amplifies the price drop.** According to Kaiko Research, during the October 10th sell-off, order book depth on major crypto exchanges plummeted, with sell-side liquidity even disappearing at one point. This lack of liquidity has not fundamentally improved since the October crash. **Even worse, tens of billions of dollars previously flowing into the market via spot Bitcoin ETFs are reversing.** Data shows that U.S. spot Bitcoin ETFs have recently seen massive daily net outflows, in stark contrast to the huge inflows earlier this year. Deutsche Bank stated that institutional exodus, combined with already fragile liquidity, leaves Bitcoin extremely vulnerable to macro headwinds. ## "Old Hands” Also Flee—Rare Selling by Long-Term Holders, Sentiment Hits Rock Bottom Unlike previous crashes driven by new entrants or highly leveraged traders, in this downturn, even the most steadfast long-term holders have begun to sell. **Blockchain data shows that in the past month, long-term holders sold over 800,000 Bitcoins, the highest level since January 2024.** These investors, normally seen as the market’s ballast, started taking profits or cutting losses, greatly increasing market supply and severely damaging confidence. The “Crypto Fear and Greed Index” fell to 11 on November 21, the lowest so far this year, signaling the market is in extreme fear. The bank stated, when even “old hands” flee, the short-term bearish momentum in the market is further reinforced. ## Where is the Way Out? After suffering these five major blows, whether Bitcoin can stabilize and recover remains uncertain. Deutsche Bank believes that, **unlike before, this downturn occurred under deep institutional involvement, closely linked macroeconomics, and unresolved key policy issues.** The bank pointed out, looking ahead, Bitcoin’s “way out” will not be easy. Its recovery will depend on several key factors: - First is final regulatory clarity, especially progress on the CLARITY Act, which will be crucial for restoring institutional confidence. - Second, mainstream institutional adoption of stablecoins may help improve market liquidity overall. - Finally, growing interest in crypto assets from governments and central banks, including Luxembourg and the Czech Republic, could provide new long-term support for the market. Risk warning and disclaimer The market has risks, invest with caution. This article does not constitute personal investment advice, nor does it take into account individual users' specific investment objectives, financial situation, or needs. Users should consider whether any opinion, view, or conclusion in this article fits their particular situation. Any investment decision made based on this article is at your own risk.