Author: Wall Street Observations

Bitcoin has been declining continuously recently. It once dropped to 66,123 dollars during the day, reaching a two-month low, and is currently reported at 66,620 dollars; Ethereum fell to 1,837 dollars during the same period, the lowest in three months, and is currently reported at 1,855 dollars.

There are many explanations circulating in the market: ETF capital outflow, geopolitical tensions, unexpected reduction by Strategy (formerly MicroStrategy). According to Bloomberg analyst Sid Verma, these assertions are not incorrect, but may only be superficial. The real issue runs deeper—Bitcoin is losing an asset competition.

For a long time, interest rates were close to zero, cash just depreciated; stock valuations were too high; AI was still just a concept; gold had limited gains. Analysis pointed out that Bitcoin's competitors at that time were not specific assets, but rather "investor dissatisfaction"—fear of inflation, dissatisfaction with existing options.

But now, the market has changed.

Three territories, Bitcoin is losing everywhere

Analysts describe Bitcoin's situation very bluntly: it is now stuck in an "awkward middle ground," beset on three sides.

Hedging against inflation? Gold has won. Investors concerned about inflation are now more inclined to buy gold, energy stocks, and commodity producers rather than Bitcoin. These assets have physical backing, pricing power, and a more direct logic.

Pursuing growth? AI has won. Investors who want high growth can now buy AI beneficiary companies with real revenue and real profits. Bitcoin does not generate cash flow and has no advantage in this space.

Positioning in crypto? Stablecoins and infrastructure have won. Even investors who want exposure to crypto do not necessarily have to buy Bitcoin. They can buy exchanges, stablecoin businesses, payment networks, tokenized financial companies—these targets’ performance is directly linked to the actual adoption rate of the crypto industry and have operational leverage, and the logic is clearer.

In one sentence: Bitcoin is neither the best hedge asset nor the best growth asset, and it is no longer the only crypto asset.

Inflation has arrived, but Bitcoin hasn't risen

One detail illustrates the problem well.

This week, Beth Hammack, president of the Federal Reserve Bank of Cleveland, warned that inflation risks may be becoming "more persistent." A few years ago, such a statement would have almost certainly been interpreted by the market as positive for Bitcoin—high inflation, depreciating fiat currency, buying Bitcoin for a hedge.

But this time, the market did not react this way.

Investors' response to inflation has changed—they are now more inclined to buy assets with direct exposure to energy, commodities, and pricing power. The "digital gold" narrative of Bitcoin is being eroded by real gold and energy stocks.

ETF outflows and Strategy reductions

Returning to the direct triggers of the recent decline.

ETF capital outflows and Strategy reductions are real events. But Bloomberg's analysis suggests that treating them as the "cause" is a misreading—they are more like "symptoms," reflecting the same underlying reality: capital has more destinations, and investors' demands for Bitcoin have increased.

Investors are becoming more selective: they not only want "crypto exposure," they want to know what returns this exposure can bring, and why it should be Bitcoin rather than something else.

The logic of Bitcoin's bear market is no longer "it is a scam," "it is a bubble," "it is a failed technology." The new bear market logic is—scarcity itself is no longer sufficient.

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