Bitcoin falls below $60K as Fed fears and AI trade weigh on crypto

Bitcoin slid below the $60,000 mark on Thursday, extending its prolonged decline.

Investors reassessed the outlook for risk assets amid the Federal Reserve's increasingly hawkish stance and continued enthusiasm around artificial intelligence-linked investments.

The world's largest cryptocurrency briefly plunged 5% during the US session to around $58,000, its weakest level since 2024.

Bitcoin later recovered some of its losses and traded near $59,300, down about 0.2% over the previous 24 hours.

The decline spread across the broader digital asset market. Ether fell around 0.8% to roughly $1,560, while Solana and Dogecoin posted similar losses.

Fed outlook and AI trade reshape investor sentiment

Markets continue to digest the capital demands associated with the artificial intelligence boom and the Federal Reserve's policy shift under new Chair Kevin Warsh.

Policymakers have signaled that their next move is likely to be a rate increase rather than a rate cut, with markets increasingly anticipating tighter monetary policy sooner than previously expected.

The changing rate outlook has challenged one of the key pillars that supported Bitcoin's previous rally.

“Through 2024 and 2025, part of the case for Bitcoin as an institutional allocation rested on an easing cycle ahead; a forecast of tightening inverts that premise,” said Deutsche Bank research analyst Marion Laboure.

“When the risk-free rate rises, the opportunity cost of holding a non-yielding asset increases, and Bitcoin trades as a liquidity-sensitive risk asset rather than a safe haven,” she added.

Bitcoin's weakness has also coincided with substantial capital flows toward artificial intelligence beneficiaries.

The cryptocurrency's decline of around 43% over the past year contrasts with a 158% gain in the PHLX Semiconductor Index, home to many of the market's leading chipmakers.

Derivatives data points to potential short squeeze

Despite Bitcoin's sharp decline, derivatives indicators suggest the possibility of a short-term rebound.

Liquidation heatmaps show a concentration of liquidation risk above current prices rather than below them, implying that additional downside may not trigger widespread forced selling.

Instead, traders with short positions could become vulnerable if prices move higher.

Open interest has risen approximately 0.28% over the past 24 hours even as Bitcoin's price declined, indicating that traders have largely maintained bearish bets rather than exiting positions.

Funding rates have also turned negative, suggesting that market participants are paying a premium for downside exposure.

Meanwhile, order book data from CoinGlass shows approximately 6,900 Bitcoin, valued at around $409 million, sitting in bids between current prices and $50,000.

In comparison, only about 1,570 Bitcoin, worth approximately $93 million, are positioned in resting sell orders between current levels and $70,000.

Bitcoin faces competition for investor capital

Bitcoin's decline has accelerated alongside persistent outflows from spot Bitcoin exchange-traded funds.

The funds have recorded six consecutive weeks of withdrawals totaling approximately $6 billion, their largest outflow streak in two years.

Analysts have also questioned the durability of the earlier "Sell America" and dollar debasement narratives that previously fueled Bitcoin's advance.

“We were rightly skeptical about this so-called ‘Sell America Trade’,” said Ed Yardeni, founder and president of Yardeni Research.

“As tariff concerns eased and recession fears abated, the debasement narrative lost momentum,” he added. “Its credibility might have ended last Wednesday, when Fed Chair Kevin Warsh made price stability his top priority at his first policy meeting.”

Jonathan Krinsky of BTIG also cautioned that market narratives can change rapidly.

“When something is at an all-time high, the narrative and fundamental thesis is often very enticing and hard to dispute,” he said.

Laboure noted that Bitcoin's evolution as an asset class has changed how investors view its price swings.

“Bitcoin is not disappearing; it is maturing into an institutional asset whose price is set by fund flows, Fed expectations, competing risk themes, and legislative outcomes,” she said. “Volatility, as ever, is not a bug but a feature.”