"Fivefold Impact" Strikes! The Logic Behind This Round of Bitcoin Plunge is Completely Different from the Past

Deutsche Bank believes that the logic behind Bitcoin's recent plunge has fundamentally changed.

According to the news from the trend trading desk, on November 24th, Deutsche Bank published a research report stating that, unlike previous crashes primarily driven by retail speculation, the current adjustment and decline of Bitcoin is the result of a combination of five shocks: macroeconomic headwinds, hawkish signals from the Federal Reserve, stagnation in regulatory processes, outflows of institutional funds, and profit-taking by long-term holders.

Data shows that Bitcoin plummeted nearly 35% from its peak of about $125,000 in early October to around $80,000, causing the total market capitalization of the cryptocurrency market to evaporate by about $1 trillion. This round of adjustment is no longer a singular event within the cryptocurrency space, but rather a concentrated manifestation of Bitcoin's increasing integration into the global macro-financial system as a risk asset.

The research report emphasizes that the correlation between Bitcoin and tech stocks has significantly increased, and its narrative as "digital gold" is facing severe tests in the current environment. This indicates that the investment logic of Bitcoin is undergoing a fundamental transformation, with the importance of risk management being elevated to unprecedented heights.

Five Shocks One: High Correlation Between Bitcoin and Tech Stocks

Bitcoin's recent decline has synchronized with the drop in U.S. stocks and other risk assets, indicating that its function as a defensive hedging tool has yet to be established.

(Bitcoin's market value has seen a decline ahead of various risk assets)

Deutsche Bank points out that with the U.S. government shutdown, renewed global trade tensions, and concerns over AI-related valuations, as U.S. stocks weaken, Bitcoin's price movement resembles that of a high-growth tech stock rather than an independent store of value.

Data shows that from the beginning of 2025 to now, the daily correlation between Bitcoin and the Nasdaq 100 index has reached 46%, while the correlation with the S&P 500 index has risen to 42%.

(In recent weeks, the correlation between Bitcoin and the Nasdaq index as well as the S&P 500 index has increased)

These two correlations have surged sharply in recent weeks, reaching levels similar to those during the market stress period of the COVID-19 pandemic in 2022. Due to Bitcoin's around-the-clock trading and higher beta coefficient, it typically leads the movements of the S&P 500 index.

In contrast, traditional safe-haven assets like gold and U.S. Treasuries have performed well recently.

For example, on October 10th, after the Trump administration issued tariff threats, Bitcoin fell by 5.6%, while gold rose by 1.03%, and the yield on 10-year U.S. Treasuries increased by 10.6 basis points.

Although gold has dropped over 3% from its peak in mid-October and the yield on 10-year U.S. Treasuries has risen about 11 basis points since October 22nd (from 3.95%), both have still outperformed Bitcoin

Fivefold Impact II: Increased Uncertainty in Monetary Policy Triggers Sell-off

The market's uncertainty regarding the Federal Reserve's monetary policy path is another key driver behind the decline in Bitcoin.

The report emphasizes the strong negative correlation between Bitcoin prices and Federal Reserve interest rates.

For example, during the Federal Reserve's interest rate hike cycle in 2022, the correlation reached -90%; while in the 2020 rate cut cycle, the correlation was -27%, with rate cuts driving up Bitcoin prices.

In October, despite the Federal Reserve cutting rates by 25 basis points, Bitcoin's price plummeted when Chairman Powell stated that "further rate cuts in December are not a certainty, far from it."

Immediately following, on November 4th, Federal Reserve Governor Cook reiterated that there is no guarantee of a rate cut in December, causing Bitcoin to drop over 6%.

So far this year, the correlation between Bitcoin's return and Federal Reserve interest rates is -13%. This clearly indicates that any signals regarding tightening monetary policy or pausing easing will directly impact the liquidity-dependent Bitcoin market.

Fivefold Impact III: Stagnation of Key Regulatory Bills

In July, the U.S. House of Representatives approved the bipartisan "Digital Asset Market CLARITY Act," which sets a framework for the classification of digital assets and establishes the Commodity Futures Trading Commission (CFTC) as the primary regulatory body for the industry, leading to a broad rebound in cryptocurrencies.

However, the momentum has stalled since the summer.

The report notes that Republican Senator Tim Scott recently stated that due to the previous prolonged government shutdown and bipartisan disagreements on decentralized finance (DeFi) identity verification and anti-money laundering controls, the bill will not be signed by the Senate before 2026.

The stagnation of regulatory momentum directly hinders the integration of Bitcoin into investment portfolios and the deepening of liquidity.

Data from the report shows that as regulatory expectations cooled, Bitcoin's volatility rose from a low of 20% in August to 39%.

At the same time, data from Deutsche Bank indicates that market adoption has stagnated, with the usage rate of U.S. retail crypto users declining from 17% in July to 15% in October. Google Trends data also shows that global interest in Bitcoin is waning.

(Trend of Bitcoin search interest globally)

Fivefold Impact IV: Outflow of Institutional Funds and Liquidity Exhaustion

In this round of decline, liquidity exhaustion and outflow of institutional funds have created a vicious cycle.

The sell-off on October 10th is a typical case. According to Kaiko Research, the order book depth of major cryptocurrency exchanges significantly decreased that day, with sell-side liquidity even disappearing for several minutes.

This liquidity gap amplified the impact of price declines and weakened market makers' willingness to provide liquidity.

In contrast to earlier this year when spot Bitcoin ETFs attracted billions of dollars in funding to support market liquidity, the recent sell-off has triggered a significant outflow of institutional funds Bloomberg data shows that the U.S. spot Bitcoin ETF has recently experienced a large-scale single-day net outflow. This institutional withdrawal has further intensified market selling pressure and liquidity tightness, leading to a reduction of approximately 24% in the total market capitalization of the entire cryptocurrency market since the October peak, exceeding $1 trillion.

(The performance of Bitcoin ETFs has been poor in recent weeks)

Fivefold Impact Five: Long-term Holders Take Profits

Unlike previous cryptocurrency crashes primarily driven by newcomers or leveraged traders, this adjustment has seen long-term Bitcoin holders taking profits.

Research reports cite blockchain data showing that long-term holders sold over 800,000 Bitcoins in the past month, the highest level since January 2024.

Earlier this year, many long-term investors had been accumulating or holding Bitcoin to cope with volatility, supporting the supply-demand dynamics. Glassnode data indicates that as prices fell, long-term holders reduced their positions and increased the circulating supply.

Meanwhile, rising Bitcoin volatility and the broader cryptocurrency market decline have kept many traders in a defensive posture.

The Crypto Fear and Greed Index fell to 11 on November 21, marking the lowest level this year. Despite Bitcoin's increasing maturity, the recent pullback has been sufficient to prompt even long-term holders to reduce risk, reinforcing the recent bearish momentum.

Bitcoin's 30-day volatility has risen again, currently reaching 39%, although it has not yet reached 2020 levels. The leveraged trading discussed among market participants has also exacerbated bearish sentiment during the sell-off due to margin calls.

(Bitcoin's 30-day volatility has begun to rise again, but it is still far from 2020 levels)

Conclusion: A New Type of Adjustment with Institutional Participation

Deutsche Bank believes it is still uncertain whether Bitcoin can stabilize after this adjustment. Looking ahead, the inclusion of Bitcoin in mainstream portfolios may continue in phases.

Recent regulatory reforms targeting the structure of the cryptocurrency market are expected to bring a clearer policy framework, thereby enhancing the confidence of institutional investors. At the same time, the adoption of stablecoins by large financial institutions is also expected to improve liquidity across the entire market.

Additionally, the increasing interest of governments and central banks in digital currencies, such as recent initiatives launched by Luxembourg and the Czech Republic, indicates that official participation in the cryptocurrency market is on the rise.

However, the research report emphasizes that uncertainty and leverage effects may exacerbate Bitcoin price volatility, thus implementing strict risk management measures is crucial as the cryptocurrency market develops.