Bitcoin briefly broke below $83,000 on Monday night, as tight liquidity, a weekend macro scare in Japan, and growing fears over a potential MSCI methodology change converged into a fast and messy move lower.
Prices hovered around $85,000 during Asian time on Tuesday morning, with XRP, ether Cardano’s ADA, Solana’s SOL, and BNB Chain’s BNB show losses of up to 2%.
Market participants said the decline had little to do with usual macroeconomic triggers and much more to do with the market’s inability to absorb even modest stress in the current environment.
“Bitcoin’s fall below $90,000 is the result of a collision between the fragile market structure and the weak liquidity conditions observed over the weekend,” said Farzam Ehsani, CEO of crypto exchange VALR.
“The pressure on the markets intensified because the order book was shallow and the market lacked sufficient depth to withstand another macroeconomic liquidity shock,” he added.
Some traders are increasingly focused on a separate structural issue: MSCI’s pending decision on whether to exclude companies whose balance sheets are heavily concentrated in cryptocurrencies from its global indices.
The proposal affects companies that collectively hold more than $137 billion in digital assets (including Strategy, Marathon, Riot, Metaplanet, and American Bitcoin), representing approximately 5% of all existing bitcoins.
Ehsani said the market is already trying to price in the possibility of forced flows from index funds, should any of these companies be reclassified.
“Any rule change automatically triggers a review of their holdings, which could lead to fire sales of these companies’ shares and trigger significant capital flows,” Ehasani said. Investors, he added, are now preparing for “short-term imbalances associated with forced capital flows.”
The poor start to December also capped a weak November for bitcoin, which ended down 17.5% in one of its biggest monthly declines in three years.
A sustained break below around $80,500 would open the door for a deeper move towards the $64,000 technical target seen by some traders.
“If the market continues to decline, Bitcoin could test the $60,000-$65,000 range. At these levels, major institutional players, including potential competitors to Strategy, could become interested in purchasing large volumes of Bitcoin,” Ehsani added.
Outside of bitcoin, US-listed crypto ETFs continued to see selective inflows. Solana funds have already recorded five consecutive weeks of net purchases, totaling more than $600 million since the end of October. XRP spot ETFs also surpassed $666 million in cumulative inflows.
On-chain data from CryptoQuant and Glassnode suggests that leverage has been depleting from the system, alleviating some structural risk, but not enough to offset the current macroeconomic and index-related uncertainty.
