Why Did Bitcoin Drop Below $65000? Cryptocurrency Hedge Funds May Have the Answer

Bitcoin's drop below $65,000 was clearly unexpected, and the reasons behind it were quite shady and determining what exactly caused it is complicated

Bitcoin's recent drop below $65,000 came as a surprise to many, and the reasons behind it have been difficult to pinpoint. However, one key factor that may have contributed to the sell-off is the reduced exposure of cryptocurrency hedge funds to the BTC market.

Over the past 20 trading days, hedge funds have decreased their exposure to Bitcoin to just 0.37, marking the lowest level since October 2020. This lack of interest from a group of investors that typically drives the market may have put substantial selling pressure on BTC.

A chart that tracks the price trend of Bitcoin from 2019 to 2024 also highlights the highs and lows of the cryptocurrency throughout this period. The upper chart shows the price movements of BTC over the years.

The lower chart in the analysis illustrates the rolling one-month beta of global crypto hedge funds to Bitcoin, which shows the degree to which hedge fund performance is influenced by changes in the price of Bitcoin.

A hedge fund's performance follows Bitcoin if its beta value is one, whereas a beta of less than one denotes reduced exposure. The drop to a beta of 0.37 indicates that hedge funds are far less vulnerable to changes in the price of Bitcoin than they were a few years ago.

This shift in hedge fund exposure is also evident in a separate analysis. The analysis shows the rolling 3-month beta of global crypto hedge funds to Bitcoin, further highlighting the decreasing exposure of hedge funds to the cryptocurrency.

This reduced exposure from a group of investors that typically drives the market may have put substantial selling pressure on BTC, contributing to its recent sell-off.