Sygnum Bank Chief Investment Officer Fabian Dori says a short-term liquidity squeeze is driving the recent crypto sell-off, with further downside possible, though improving fundamentals could accelerate a recovery.
Bitcoin (BTC $71,385.87) is likely to remain volatile in the near term as markets grapple with constrained liquidity and deeply fractured sentiment. “We can see volatility remaining high in the short term, and prices could even go lower from here,” Dori told CoinDesk. “Sentiment has collapsed. Trust and confidence for investors to build exposure are very limited.”
The divergence between gold, which has held steady, and innovation assets such as Nasdaq tech stocks and bitcoin underscores the fragility of the current environment. But Dori cautions against searching for a single cause. “It’s a number of elements that have been building over recent months,” he said.
Macro headwinds and uneven institutional flows have pressured crypto markets, with sticky inflation and shifting expectations for Federal Reserve rate cuts curbing risk appetite. Periodic geopolitical flare-ups, thin ETF flows, liquidity stresses, and leveraged liquidations have amplified downside moves, repeatedly testing key support levels.
“Crypto has been on thin ice for some time,” Dori said. Long-term holders remain cautious of bitcoin’s four-year cycle, leaving the ecosystem more fragile with fewer strong hands to absorb volatility.
Liquidity pressures are compounded by broader macro factors. Since June last year, increased U.S. Treasury issuance has boosted balances in the Treasury General Account at the Federal Reserve, effectively pulling liquidity from markets. “Crypto, being one of the most liquidity-sensitive asset classes, was among the most affected,” Dori noted.
A record liquidity event on Oct. 10 further weakened risk appetite, compressing funding rates and reducing market depth. Other uncertainties—including debates over bitcoin’s store-of-value narrative, quantum computing risks, and delays in U.S. legislation like the Clarity Act—have reinforced market caution.
Bitcoin has fallen roughly 40–50% from its recent highs, levels last seen during the 2022 systemic crisis. Dori rejects comparisons to 2022, noting that today’s regulatory clarity, institutional adoption, and counterparty soundness make the environment fundamentally different.
He sees the current weakness as a short-term liquidity squeeze rather than a structural change. Positive signals are emerging: U.S. ISM services and manufacturing data have surprised to the upside, and subdued inflation trends could allow the Fed to resume rate cuts, easing liquidity pressures.
Crypto fundamentals remain robust. Stablecoin growth continues, token activity on Ethereum and Solana remains strong, and institutional adoption, while uneven, is progressing. “Once sentiment normalizes and liquidity conditions improve, the gap between traditional assets and crypto should narrow again,” Dori said.
Fear-and-greed indicators sit at extreme fear levels, showing limited appetite for exposure. Potential catalysts include U.S. crypto legislation, easing geopolitical tensions, or progress in AI and sustainability narratives.
“Short-term sentiment isn’t great,” Dori said, “but structurally, the foundation is stronger than it appears. Volatility may persist, and prices could test lower levels—but improving liquidity and macro data could trigger a faster recovery than expected.” Beneath the turbulence, crypto fundamentals continue to strengthen.
