What Really Caused Bitcoin's 50% Crash? It's Not What Traders Think

Bitcoin's decline to approximately $60,000 on February 5 mirrored the performance of high-growth software stocks, according to analysis from crypto asset manager Grayscale. 

The correlation suggests the 50% peak-to-trough drawdown resulted from broad market derisking of growth-oriented portfolios rather than problems unique to cryptocurrency markets. This pattern challenges Bitcoin's reputation as digital gold and reinforces its current classification as an emerging technology asset.

How Did Bitcoin Perform During The February Sell-Off?

Bitcoin touched a local low of approximately $60,000 on February 5, representing a peak-to-trough drawdown exceeding 50% since early October. The sell-off accelerated over the two weeks leading up to the low before Bitcoin partially rebounded in subsequent days.

The decline extended across crypto sectors, with some altcoin market segments falling 65% to 70% month to date. However, the breadth of the sell-off coincided with weakness in traditional growth assets, particularly technology stocks.

Grayscale's analysis compared Bitcoin's price movements to an index of U.S. software stocks with high enterprise value to sales ratios. A high EV-to-sales ratio typically indicates investors expect significant revenue growth over time, a characteristic common in emerging technologies. The tight correlation between these two asset classes during the drawdown provides evidence that macro factors drove the decline rather than cryptocurrency-specific concerns.

Why Did Bitcoin Move With Software Stocks?

The lockstep movement between Bitcoin and software stocks stems from their shared classification as long-duration assets. Long-duration assets derive value primarily from expected future cash flows and adoption rather than current earnings or utility. This makes them particularly sensitive to changes in liquidity conditions and interest rates.

Both Bitcoin and high-growth software companies face similar investor dynamics. When risk appetite contracts and liquidity tightens, investors typically reduce exposure to assets dependent on future growth projections. The simultaneous decline in both markets suggests a common cause rooted in macro liquidity conditions.

Raoul Pal, founder and CEO of Global Macro Investor, argued the market downturn that erased $250 billion in crypto market capitalization resulted from a U.S. liquidity shortage rather than crypto-specific problems. He noted that claims of "crypto is dead" mirror similar narratives about artificial intelligence replacing software firms, yet both sectors declined together.

What Are Long-Duration Assets And Why Do They Matter?

Long-duration assets represent investments whose value depends heavily on expectations about the distant future. Unlike assets that generate immediate cash flows or serve current utility, long-duration assets require investors to make assumptions about adoption rates, revenue growth, and market conditions years or decades ahead.

Software-as-a-Service companies exemplify this category. Their valuations reflect projected subscription growth and market expansion rather than current profitability. Similarly, Bitcoin's value proposition centers on its potential role as a global monetary asset and store of value, outcomes that depend on future adoption rather than present utility.

This classification explains why both asset classes respond similarly to changes in liquidity and interest rate expectations. When liquidity tightens or discount rates rise, the present value of distant future cash flows decreases proportionally across all long-duration assets.

Is Bitcoin A Store Of Value Or A Growth Asset?

Grayscale's analysis positions Bitcoin as both a store of value and a growth asset, though these characteristics exist at different time horizons. Bitcoin possesses attributes similar to monetary gold, including capped supply, decentralization, and independence from nation states. The network has demonstrated resilience across market cycles, against potential attackers, and despite competition from thousands of alternative cryptocurrencies.

These features support Bitcoin's classification as a long-term store of value. The network operates on open-source code, maintains high decentralization, and relies on physical infrastructure that has achieved significant scale. Grayscale argues the network will likely continue operating beyond current lifetimes and may retain real value across various economic scenarios.

However, Bitcoin remains young at 17 years old. Gold has served as money for thousands of years and functioned as the basis of the international monetary system until the early 1970s. Today gold ranks as the second-largest asset in official foreign exchange reserves after the U.S. Dollar and ahead of the Euro. Bitcoin has not achieved comparable status as a monetary asset.

This gap between current state and potential future role creates Bitcoin's growth characteristics. Investing in Bitcoin represents positioning for potential adoption as the dominant digital monetary asset in an economy featuring artificial intelligence agents, robotics, and tokenized capital markets. Until that adoption materializes, Bitcoin's price will likely remain sensitive to risk appetite and move with growth-oriented portfolios.

What Market Mechanics Drove The Sell-Off?

Several technical indicators point to U.S.-based sellers driving the recent price weakness. Bitcoin traded at a significant discount on Coinbase compared to Binance during the market lows. Coinbase represents the largest U.S. exchange by volume while Binance operates as the largest offshore exchange. This pricing gap suggests domestic sellers dominated the market action.

Crypto derivative markets showed signs of significant deleveraging. Aggregate open interest for the four largest perpetual futures exchanges fell by more than half since October. Funding rates, which represent the cost of holding long positions in perpetual futures contracts, turned negative for the largest crypto assets by market capitalization. Option skew reached extreme levels, indicating heightened demand for downside protection.

These technical factors suggest the sell-off represented a deleveraging and risk reduction event rather than fundamental concerns about Bitcoin's network or technology.

How Did US Liquidity Issues Impact Crypto Markets?

Pal identified specific U.S. liquidity mechanisms that contributed to the market stress. The Federal Reserve's Reverse Repo Facility, where banks and money market funds park cash overnight, completed its drain in 2024. This facility previously served as an offset when the U.S. Treasury rebuilt its cash account.

Treasury General Account rebuilds typically create negative liquidity impacts on markets. Previously, simultaneous RRP drains offset these effects by releasing liquidity into the financial system. With the RRP now empty, TGA rebuilds function as pure liquidity drains without available offsets.

Two government shutdowns and what Pal described as "issues with U.S. plumbing" exacerbated the temporary liquidity drain. These structural factors affected all risk assets, not just cryptocurrency markets.

The CLARITY Act's delays in the Senate Banking Committee during January likely added pressure to crypto valuations. However, the correlation with software stocks suggests regulatory uncertainty played a secondary role to broader liquidity conditions.

Conclusion

Bitcoin's correlation with high-growth software stocks during the February sell-off demonstrates its current market classification as an emerging technology asset rather than a mature store of value. The 50% drawdown, U.S.-based selling pressure, and $318 million in spot Bitcoin ETP outflows coincided with software stock declines and derivative market deleveraging. 

Analysis from Grayscale and Global Macro Investor attributes the weakness to U.S. liquidity constraints and the completion of the Reverse Repo drain rather than cryptocurrency-specific problems. Bitcoin's behavior as a long-duration asset sensitive to risk appetite and liquidity conditions reflects its early stage in the monetary adoption curve compared to gold's millennia-long history.

Resources

1. Report by Grayscale: Market Byte: Bitcoin Trading More Like Growth Than Gold

2. Report by CoinDesk: Bitcoin a tech trade for now, not digital gold, says Grayscale

3. Bitcoin on CoinMarketCap: BTC price action