Short Term Negative, Long Term Positive: The "Winter Phase" Is Still Not Over

Key points of this article

1.Factors behind BTC's decline
Bitcoin fell to $59,000 even as the broader market turned risk-on. Behind this were deteriorating fundamentals — stalled progress on the CLARITY Act and the arrival of a new Fed chair — compounded by a trial sale from Strategy, the company that has been a key driver of buying, which triggered outsized jitters in the market.

2.ETF outflows and capital rotation
On the supply-and-demand side, the longest streak of ETF outflows on record took a toll. Capital appears to have flowed out toward the AI stock boom and SpaceX's massive IPO, which is itself evidence that Bitcoin has established itself as a mainstream financial asset now entering a new phase of competing with other assets for capital.

3.The "winter phase" and the outlook ahead
The market currently sits in the "winter phase" of its four-year cycle, and in the near term a bottoming-out process around $60,000 and several months of sluggishness are expected. Still, absorbing this shock is, in the long run, a healthy structural shift, and a genuine turn upward is more likely to come sometime after autumn.

Bitcoin (BTC) stalled after being rejected at its 200-day moving average just short of $83,000, and fell to $59,000, marking a new year-to-date low.

Even with a ceasefire reached over the Iran issue and talks toward a lasting peace now underway, and the broader market turning risk-on — the Nikkei surpassing 70,000 yen among other signs — why was Bitcoin the one asset that got sold off?

There are two main fundamental factors. First, doubts have begun to surface over whether the CLARITY Act will actually pass. It cleared the Senate Banking Committee on May 14, but if it fails to pass both full chambers before the summer recess at the end of July, passage before the midterm elections becomes difficult, and depending on the election outcome, there's now a real possibility it gets shelved entirely by year-end. For a market that had viewed passage as all but certain after it cleared the House with bipartisan support, this came as a significant shock.

Second is the arrival of Fed Chair Warsh. The new chair has signaled a strong stance toward shrinking the Fed's balance sheet and containing inflation, which has dented the narrative of buying Bitcoin as an inflation hedge.

On the supply-and-demand side, Strategy's small sale (32 BTC) had an outsized effect. It was only a tiny fraction of the company's 840,000 BTC holdings, but it shattered the myth that "Strategy buys BTC forever," and that rattled the market considerably.