Why Bitcoin Could Crash to $48,000 on Strategy Fallout

Despite an already painful selloff, Bitcoin may have more room to fall according to one of crypto's top analysts.

Fundstrat Head of Digital Asset Strategy Sean Farrell joined Coinage to explain why Bitcoin could fall below $50,000 before finding a durable bottom.

Not only are investors continuing to digest a shift in posture from Strategy, the largest public holder of Bitcoin, but historical performance in prior Bitcoin bear markets portends another leg lower.

"I think it makes things worse for Bitcoin in the immediate term," Farrell said about Strategy's first Bitcoin sale in years. "It's tough to envision significant inflows into Bitcoin and by extension, the broader crypto ecosystem over the near term, absent some unforeseen catalysts that I don't have on my radar right now."

The most optimistic bits Farrell could reach for are hopes that Bitcoin falling to below $50,000 would likely trigger indicators that have coincided with bottoms in past bear markets. Data compiled by research firm K33 show that the percent of Bitcoin held at a loss is nearing historical highs, and that a shallower prior bull run could indicate we're in a shallower bear market.

"Similar to Bitcoin becoming less extreme to the upside, I think it does probably become less extreme to the downside," Farrell said. Compared to the bear cycles of 2021 and 2017, the current Bitcoin bull market would indeed be far shorter and shallower if Bitcoin finds its footing.

K33's research report points out that it took 401 days for Bitcoin to bottom after its November 2013 peak, suffering a drawdown of 85%. Following the 2017 top, Bitcoin bottomed after 364 days, falling 83.54% from its all-time high. After the 2021 surge, Bitcoin reached its low 376 days later, with a drawdown of 76.16%.

"By comparison, the current drawdown has lasted 'only' 246 days, with a peak decline of 53.23%," K33 Research analysts note in a new report.

The reason why Farrell is constructive on Bitcoin's risk and reward if it suffers another leg lower is somewhat paradoxical. Strategy spooked the market after revealing it sold 32 Bitcoin last week, but now it appears somewhat tapped out in new buying firepower. Its perpetual preferred stock, STRC, has continued to trade below par, cutting off what had been its most potent fundraising lever so far this year.

Without new ways to raise cash to buy Bitcoin or sustain its 11.5% dividend on STRC, Farrell fears more selling could ensue — triggering more existing Bitcoin holders to move to beat Strategy Chairman Michael Saylor to the punch. It's essentially the same flywheel that pushed Bitcoin higher last year now playing out in reverse.

"I don't think we're going to get to... as depressed of a level as we saw in prior bear markets," he said. "I also think there's just stickier demand from institutional portfolios now ... but if we were to get down to a level in which we had a four-handle to buy, I think I'd want to participate in that."

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