Bitcoin has further fallen below $80,000, with trading prices approaching $77,527. It has dropped by 3% in the past 24 hours and by 5% in the past week. Many investors are wondering why: with the U.S. debt at around $40 trillion, inflation near 4%, and oil prices remaining high amidst tensions with Iran, Bitcoin has still not been able to break through this barrier.

A former Wall Street investor and author of content on Bitcoin and macroeconomics, James Lavish, stated that there are several forces pressing down on prices, some of which are not easily noticeable.

Other parts of the market are also falling.

According to market data, the weakness in the entire crypto market is spreading:

• Ethereum: $2,237.76, down 3.9% in the past 24 hours, down 7.4% in the past 7 days
• BNB: $703.19, down 6.6% in the past 24 hours, down 5.7% in the past 7 days
• XRP: $1.25, down 2.9% in the past 24 hours, down 5.5% in the past 7 days
• Solana: $96.98, down 3.4% in the past 24 hours, and down 7.5% in the past 7 days

Reason 1: AI is absorbing funds.

Lavish says that a large amount of investor funds have flowed into the stocks of AI. This year, most of the increase in the S&P 500 index came from just a few companies, and a lot of cash that could have gone into Bitcoin has been taken up by these bets.

Reason 2: Cash and bonds once again offer decent returns.

Investors can now obtain considerable returns by simply holding cash. Some people are also buying long-term bonds with a yield of around 5%, hoping to profit when interest rates fall. Lavish believes that in the long run, long-term bonds are not a good investment, but he understands why some traders regard them as a means to profit more quickly.

Reason 3: Invisible sellers

Lavish says that the least obvious source of pressure comes from those who have held Bitcoin for a long time; they earn additional income by selling their call options on BTC. The way this creates selling pressure is as follows:

• Holders usually sell these call options to market makers.
• Market makers then hold these options and must hedge against the risk of price fluctuations.
• For this reason, the market-making firm will sell bitcoin equivalent to approximately 30% to 40% of its position.

For example, if a market maker holds call options covering one million dollars worth of Bitcoin, it may need to sell $300,000 to $400,000 worth of BTC as a hedge. Lavish indicates that this situation is currently occurring and is resulting in continuous selling pressure.

Reason 4: Leverage has trapped Bitcoin within a range

Lavish says that the leverage embedded in "paper Bitcoin" products is keeping prices within a range of fluctuations. Compared to 2013 or 2014, the Bitcoin market is much larger today; back then, a small amount of capital could cause prices to fluctuate by thousands of dollars, while now it requires more capital to drive such movements.

Reason 5: The Federal Reserve and Credit Tightening

Lavish indicates that the Federal Reserve has been tightening lending conditions, which means there is less idle capital available for risky assets. Investors are also trying to assess the current state of the economy in terms of growth, manufacturing, and inflation. Until this situation becomes clearer, Bitcoin, gold, the NASDAQ, and the S&P 500 all seem to be in a wait-and-see mode.

Does the sharp decline in October mark the peak?

Lavish also mentioned that there was a significant deleveraging event in October, during which a large number of traders who used high leverage were liquidated. He said that this may have played some role in the peak of Bitcoin. With 30 years of experience on Wall Street, he finds it hard not to suspect that someone took advantage of that moment. He added that this could also be a kind of chain reaction, similar to the bond crisis in the UK in 2022, when forced sales by pension funds triggered a broader decline.

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