Bitcoin’s pullback: Normal correction or start of a bear market?

Bitcoin has pulled back 23% from its cycle high of US$109.5K on January 20th, sparking debate about whether we’re at the start of a bear market. But if history tells us anything, corrections like this are just part of the cycle. In 2021, BTC dropped 55% before rallying to new highs.

Macro pressures are weighing on risk assets

One of the biggest drivers of this market pullback isn’t just internal to crypto, it’s macroeconomic uncertainty. As I explained to The Block, Trump’s tariffs have continued to rattle global markets, triggering a broader risk-off sentiment that extends beyond equities into digital assets. Crypto doesn’t trade in a vacuum; liquidity moves between asset classes, and when traditional markets take a hit, crypto usually follows.

In addition, the US Federal Reserve’s stance on interest rates remains a major factor. While the market has been pricing in rate cuts for 2025, uncertainty around inflation and economic growth has investors second-guessing whether those cuts will come as quickly as hoped. This hesitation impacts all risk assets, including crypto.

Market exhaustion after a massive rally

Bitcoin has surged over 600% since late 2022, fuelled by institutional adoption, spot ETF approvals, and increasing retail interest. But no market goes up in a straight line. After that kind of rally, a pullback is inevitable.

A few key indicators suggest we’re seeing typical signs of market exhaustion:

• High funding rates: Perpetual futures funding rates have been elevated, signalling overly aggressive long positions that needed to reset
• Extreme greed in sentiment indicators: The Fear & Greed Index has been at euphoric levels, often a sign that a cooldown is coming
• Slowing ETF inflows: Spot Bitcoin ETFs drove much of the early 2024 demand, but inflows have tapered off, reducing upward momentum.

Miners, whales, and on-chain trends

On-chain data also points to increased selling pressure. Post-halving, miners are under more financial strain, leading to a rise in BTC being sent to exchanges. At the same time, whale accumulation has slowed, suggesting large investors are waiting for better entry points before buying in again.

Meanwhile, exchange inflows have been climbing, indicating that more BTC is being moved onto trading platforms, which often precedes further selling.

What’s next? Healthy reset or more pain ahead?

While some analysts see further downside risk, this correction looks more like a typical pullback than the start of a full-blown bear market. BTC’s long-term adoption trends remain strong, and macroeconomic conditions will ultimately dictate the next major move.

If rate cuts materialise and market liquidity improves, risk assets, including Bitcoin, could see renewed momentum. But in the short term, expect continued volatility as the market digests macro uncertainty and internal positioning resets.

For long-term investors, these moments of fear often present opportunities. Bull markets don’t move in straight lines, and history shows that patience tends to pay off.

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