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 support a recovery.
Bitcoin (BTC $71,385.87) is likely to remain volatile as markets grapple with constrained liquidity and weak investor sentiment. “Volatility is likely to stay high in the short term, and prices could go lower from here,” Dori told CoinDesk. “Trust and confidence for investors to build exposure are very limited.”
The divergence between gold, which has held steady, and riskier assets like Nasdaq tech stocks and bitcoin highlights market fragility. But Dori cautions that no single factor explains the current environment. “It’s a combination of elements that have been building over recent months,” he said.
Macro headwinds, uneven institutional flows, sticky inflation, and shifting expectations for Federal Reserve rate cuts have weighed on risk appetite. Periodic geopolitical flare-ups, thin ETF flows, liquidity stresses, and leveraged liquidations have magnified downside moves, repeatedly testing key support levels.
“Crypto has been on thin ice for some time,” Dori said. Long-term holders are cautious of bitcoin’s four-year cycle, leaving fewer strong hands to absorb volatility.
Liquidity pressures are compounded by macro factors. Increased U.S. Treasury issuance has boosted balances in the Treasury General Account at the Federal Reserve, effectively pulling liquidity from markets. “Crypto, being highly liquidity-sensitive, was among the most affected,” Dori noted. A record liquidity event on Oct. 10 further reduced market depth, while uncertainties around bitcoin’s store-of-value narrative, quantum computing risks, and delayed U.S. legislation like the Clarity Act have reinforced caution.
Bitcoin has fallen roughly 40–50% from recent highs, similar to 2022 declines, though Dori says the environment is fundamentally different: regulatory clarity, institutional adoption, and stronger counterparty risk make systemic failure unlikely.
Dori sees current weakness as a short-term liquidity issue rather than a structural problem. Positive signs are emerging: U.S. ISM data has surprised to the upside, and inflation trends could allow the Fed to resume rate cuts, easing liquidity pressures.
Crypto fundamentals remain constructive. Stablecoin growth continues, token activity on Ethereum and Solana is robust, and institutional adoption is progressing. “Once sentiment normalizes and liquidity improves, crypto should narrow its gap with traditional assets,” Dori said.
While fear dominates sentiment now, improving liquidity, macro data, and institutional inflows could trigger a faster-than-expected recovery. “Volatility may persist, and prices could test lower levels—but structurally, the foundation is stronger than it appears,” Dori said.
