Bitcoin price has lost 15% since its all-time high of $74,000 two weeks ago. This dip is far from extraordinary by the stock market standards, and even less so for the crypto space. As Anthony Pompliano, the famous Bitcoin bull and crypto investor, has put it: “It’s a pullback for ants”. 

Nonetheless, it is still important to assess the possible reasons for this dip, particularly in order to review the main forces that affect the price action. Despite the clearly defined 4-year Bitcoin cycle, which guides the long-term trend, the market structure and conjecture in every cycle are different. 

So why did the Bitcoin price dip? 

Is it because of massive outflows from the Grayscale fund? A mysterious hedge fund’s unsuccessfully trying to play the MSTR-BTC spread? Debt-funded $BTC purchases by Microstrategy fueled uncertainty? Inflation numbers higher than expected, or simply profit-taking by the traders? 

Let’s look at some of the most popular explanations. 

Big Finance’s new toy 

Bitcoin entering the game of big finance is a double-edged sword for market volatility. 

On the one hand, traditional funds typically have a long-term investment horizon and are less likely to be the “paper hands” that panic-sell at every price drop. 

On the other hand, the amounts at stake are much bigger, and risk to have a bigger impact on the market. 

For example, Grayscale’s $GBTC fund (converted into ETF, but keeping its high fees) and its outflows were blamed for this week’s 10% dip. The fund has seen a record $1 billion of redemptions on Monday and Tuesday, according to Coinshare’s Head of Research. At the same time, despite the jaw-dropping demand for the new ETFs, they failed to generate an equivalent buying pressure during these two days, which could have contributed to the Bitcoin drop. 

It is worth noting that if we zoom out, Grayscale’s total outflows of $12 billion (since January 10th) are largely covered by the nine new ETFs’ inflows of $24.7 billion.  

Microstrategy, another type of Bitcoin fund? 

Traditional funds are not the only ones to play with Bitcoin in the TradFi realm. Microstrategy, a public software company ($MSTR) that has been buying Bitcoin for the last four years, has become a fully-fledged player in the Bitcoin market.  

It now holds 205,000 BTC, worth roughly $13 billion, and continues buying more of the leading cryptocurrency using senior convertible notes to finance its plans. These notes act like bonds, which can be turned into the company’s shares, and whose interests are to be paid before other debts if the company fails. 

Last week, JP Morgan warned that such debt-fuelled bitcoin purchases “add leverage and froth to the current crypto rally and raise the risk of more severe deleveraging in a potential downturn in the future”. 

This opinion joins a theory that is now making its rounds on X, according to which an unknown hedge fund tried to play the spread between $MSTR and $BTC. Shorting $MSTR did not yield results, so they had to close their positions and sell $1 billion worth of BTC, triggering a quick 8% drop last Tuesday. 

Whether this was the reason or not, it is safe to say that Microstrategy and its stocks are now worth paying attention to. 

Macro conditions 

As Bitcoin makes its way to Wall Street, macroeconomic conditions play an increasingly important role. During the last cycle, near-zero interest rates were “blamed” for Bitcoin’s spectacular rise. Nowadays, the situation is different, and financial and crypto markets are keeping a close eye on every inflation-related indicator, hoping to see the signs of the Fed and the ECB lowering rates. 

However, this might not be happening soon. Last Tuesday, the US Labor Department published data showing that the producer price index jumped 0.6% in February, which means that the inflation is not tamed yet. This decreases the chances that the Fed will cut rates in May and calms down the investment enthusiasm. 

All in all, any of the above reasons, as well as a simple profit-taking by the traders, could have played a role in Bitcoin’s dip, making the market pause and take a breather. It is a healthy slowdown in the bull market (which saw much more violent ones in the past), allowing it to clean the most reckless leveraged positions and prepare for the rest of the bull run.