Bitcoin’s brutal week tests risk appetite for investors

Bitcoin’s latest bout of volatility is rippling well beyond crypto, forcing a broad reexamination of investors' conviction in cryptocurrencies and their broader appetite for risk.

After plunging as much as 13% on Thursday — its sharpest one-day drop since the FTX collapse in November 2022 — bitcoin rebounded Friday to trade near $67,000, up from overnight lows around $61,000. Even with that bounce, the token is still on track for its worst week since 2022 and remains down roughly 23% for the year.

The selloff has wiped out more than half of bitcoin’s value from its all-time high above $126,000 reached in October, erasing some $1 trillion from the asset and another $700 billion across the broader digital-asset market, according to Barron’s. The coin dipped below $65,000 this week for the first time since October 2024, deepening concerns about how much more pain retail traders and ETF holders can tolerate.

For crypto specialists, the mood has turned notably darker. “From a sentiment perspective, comparisons across cycles are always imperfect, but anecdotally there is an outsized sense of fear and fatigue among crypto-native participants,” Sean Farrell, head of digital assets at Fundstrat, wrote in a Thursday note. He said he has raised net long exposure in his own portfolio to 80% while “leaving some wiggle room for another visit into the [$50,000s].”

Some of that fatigue is showing up in the new generation of spot bitcoin ETFs, many of which have pulled in advisor assets since launching. Research firm 10X pointed to a “significant overhang” from overexposed ETF investors who bought at higher levels, estimating an average acquisition price around $90,000 for those positions. Underwater holders may be reluctant to deploy fresh capital, especially as they revisit crypto allocations with clients.

“Under these conditions, attracting incremental allocations from Wall Street investors becomes increasingly difficult, particularly when many existing holders likely regret not reducing exposure at significantly higher levels,” 10X said in its note.

The shakeout has not been confined to digital assets. Bitcoin’s retreat has coincided with selling across tech names and other risk-sensitive corners of the market, as well as sharp moves in gold, silver, and other metals. The Nasdaq is down more than 3.8% over the past month, while software stocks have slumped enough to underperform the broader tech benchmark by the widest margin since 2001. An index tracking the so-called Magnificent Seven – which make up roughly two-fifths of the S&P 500’s market value – is off 4.8% since the start of the year.

“Bitcoin prices have been moving in lockstep to tech stocks, so when there is fear, we see Bitcoin and tech stocks typically decline simultaneously,” Paul Stanley, chief investment officer at Granite Bay Wealth Management in Portsmouth, New Hampshire, said in a note. “Investors tend to sell first and ask questions later, and Bitcoin is one of the prime asset classes to succumb to investor fear, especially given how much it has run up in recent years.”

Analysts are also watching whether this year’s turbulence in crypto and equities is being amplified by the unwind of popular macro trades. The recent slide in tech, heightened volatility in precious metals, and pressure on the US dollar all echo past periods when investors were forced to reverse yen-funded carry trades after abrupt currency moves.

At the policy level, investors should not expect a safety net. Treasury Secretary Scott Bessent told lawmakers he has no authority to backstop crypto markets when asked about the possibility of a bitcoin bailout, undercutting any notion of direct government support.

The political narrative around digital assets is shifting as well. Nobel Prize-winning economist Paul Krugman argued this week that as prices have fallen, bitcoin is losing appeal both as a hedge against currency debasement and as an alternative to gold, and is increasingly being used as a political tool.

Portfolios with exposure to crypto-adjacent equities are also feeling the impact. Strategy, a software and bitcoin-treasury company whose business model is closely tied to the token, saw its stock plunge 17% on Thursday to the lowest close in two years before staging a rebound in premarket trading Friday alongside bitcoin’s recovery.

Be that as it may, TD Cowen analyst Lance Vitanza argued in a client note that Strategy “has the wherewithal to ride out a hypothetically much steeper Bitcoin rout,” citing the company’s $2.25 billion cash reserve as sufficient to cover fixed charges for nearly a year and a half and address a potential bond redemption in 2027. He maintains a buy rating and a $440 price target, implying substantial upside from current levels if bitcoin eventually returns to record highs.