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(Bloomberg) - Bitcoin bulls have it all -Wall Street support, political tailwinds, institutional cash. Everything, that is, except a rally.

After topping $126,000 in October, Bitcoin has fallen sharply, briefly wiping out its 2025 gains before stabilizing on Monday morning in Asia. The sharp retreat from record highs comes in a year that was supposed to cement Bitcoin’s legitimacy.

Some of the damage reflects hangover and exhaustion. Retail cash got torched chasing crypto-treasury stocks at the highs. Then in early October, a surprise escalation in trade tensions triggered liquidations — just as leverage boomed. The result: a market long on expectations, short on conviction and too fragile to catch the knife once sentiment flipped.

All this, just as the pro-crypto story looked strongest. ETFs hauled in billions by midyear, recasting Bitcoin as a macro hedge. US President Donald Trump’s pro-crypto policies promised even more upside. But flows stalled. Some longtime holders cashed out. And poster firms like Strategy Inc. now trade close to the value of their Bitcoin holdings — a sign conviction is no longer commanding a premium.

“At this point, Bitcoin trades much more like a macro asset embedded in institutional portfolios, responding to liquidity, policy, and dollar dynamics more than to mechanically predictable supply shocks,” said Jake Kennis, an analyst at crypto data firm Nansen.

Despite all the talk of institutionalization, the market still trades on vibes. And right now, the vibes are bad. Risk appetite has rolled over. Altcoins are down hard this year. And the Trump boost hasn’t insulated crypto from macro drag — or from competition with new speculative darlings like AI, stablecoins and prediction markets.

With gold and stocks near all-time highs, Bitcoin is the “tip of the risk-assets iceberg and melting,” said Mike McGlone, senior commodity strategist at Bloomberg Intelligence. “I expect Bitcoin and most cryptos to keep falling.”

The market plumbing is intact, and Bitcoin is still up meaningfully since Trump’s election win. But for an asset expected by some to hit $200,000 by the end of the year, the recent slump feels like a letdown. If Bitcoin can’t break out with policy support, growing mainstream adoption and financial scaffolding in place — when can it?

 
At this point, it may be traders’ nervousness over history repeating itself that “makes the four-year cycle happen,” said Eric Balchunas, ETF analyst at Bloomberg Intelligence. On the other hand, he added, “the typical rhythms may be thrown off a little, or be thrown off permanently.”

Derek Lim, head of research at crypto market maker Caladan, said the Bitcoin bull runs of 2017 and 2021 weren’t simply the result of the halving events that preceded them, but of “a more powerful and fundamental driver: global liquidity.” That may return now that the US government shutdown has come to an end, he added.

--With assistance from Sidhartha Shukla.