Bitcoin hits multi-month lows as crypto, stocks witness heightened risk-off sentiment

Bitcoin fell to $78,000 on Monday, marking a 27% decline from its all-time high, as crypto and stocks stretched their combined market cap losses to $6 trillion. The selling pressure is largely due to a growing correlation between the asset classes and a shift in investor sentiment toward a risk-off strategy.

Crypto, stocks bleed as investor sentiment dips to record lows

The crypto market bled heavily on Monday, declining by 4% and pushing its market cap to $2.67 trillion — a low last seen on November 9. Over the past three months, the increased selling pressure has seen crypto assets shed $1.2 trillion in market cap since hitting a peak on December 17.

Bitcoin dipped to a multi-month low of $78,000 for the first time since November, marking a 27% decline since reaching an all-time high of $107,000 in January.

Stocks also witnessed a similar trend, with over $1.4 trillion wiped out from the S&P 500 on Monday — its largest single-day loss since 2022. The crypto and stock markets have erased nearly $6 trillion in combined market cap since January.

The decline in crypto and stocks follows investors taking a sharp swing away from risk assets. This is evident in the Fear and Greed Index falling to a two-year low of 14, indicating extreme risk-off sentiment.

Investors showed extreme greed following Trump's election win last year, where the index rose to 92. However, the shift to fear indicates wider disinterest in risk assets.

"The real reason behind the market's decline is a sudden shift in risk appetite. We have gone from Extreme Greed to Extreme Fear in a matter of days," wrote The Kobeissi Letters in an X post on Monday.

"Positioning was so polarized, that we have swung in the complete opposite direction," they added.

The losses across crypto and stocks underscore their rising correlation in recent months.

For crypto, market participants have reacted more to President Trump's tariff efforts than his positive regulator reforms and actions toward the digital asset industry. For example, the recent creation of a Bitcoin strategic reserve ended as a "sell the news," with the market unable to break free from the bearish pressure across the stock market.

"Until crypto finds a new narrative, we're likely to see an increased correlation," QCP analysts shared in a note to investors on Monday.

However, Stabolut CEO Eneko Knorr highlighted that the top digital asset could break free soon.

"Bitcoin will still respond to macro trends, but when traditional markets enter a prolonged bear cycle, Bitcoin is likely to break free and chart its own course," Knorr told FXStreet.

Knorr added that Bitcoin's correlation with stocks only affects its short-term trajectory as its long-term momentum "tells a different story."