Bitcoin’s selloff pushes price below $70,000. What to know

Crypto prices have declined sharply in recent weeks — and some analysts warn of more pain ahead for investors.

The price for bitcoin, the most popular cryptocurrency, sank below $67,000 on Thursday, touching its lowest level in more than a year. Analysts had been watching $70,000 as a key psychological threshold below which prices were likely to break further.

The digital asset has fallen nearly 50% from its recent high in October, when bitcoin peaked around $126,000. Bitcoin was down about 10% during trading on Thursday as of 1:30 p.m. E.T.

Barry Bannister, chief equity strategist at Stifel, wrote in a research note Wednesday that bitcoin could ultimately bottom out around $38,000 — down about 70%.

He said he reached that conclusion based on trends and price moves during past “bitcoin super-bears,” or periods of steep downturns.

“This is not a ‘bull market correction’ or ‘a dip,'” Matt Hougan, chief investment officer at Bitwise Asset Management, a crypto money manager, wrote in a note Monday.

“It is a full-bore, 2022-like, Leonardo-DiCaprio-in-The-Revenant-style crypto winter — set into motion by factors ranging from excess leverage to widespread profit-taking by OGs,” Hougan wrote. OGs refer to early investors in bitcoin.

Trump promised to make the U.S. a “bitcoin superpower” while on the campaign trail, and said he wants to make the U.S. the “crypto capital of the world.” Trump signed an executive order within days of taking office to promote digital assets, and the White House and U.S. regulators have pursued supportive policies.

Bitcoin ETFs began trading on U.S. stock exchanges about two years ago, making it easier for investors to buy and sell crypto.

So, why have crypto prices dropped in recent weeks and months?

Because “good news doesn’t matter” In the “depths” of a crypto winter, as seen in 2018 and 2022, for example, according to Hougan.

“We’re not going to rally because Wall Street is hiring aggressively or Morgan Stanley is ramping up on crypto,” he wrote. “That will matter in the long term, but not now. Crypto winters don’t end in excitement; they end in exhaustion.”

Bitcoin has also been selling off amid a broader pullback in growth stocks and amid “hawkish” interest rate cuts by the Federal Reserve, Bannister wrote.

“Hawkish cuts” — meaning the central bank cut interest rates while suggesting it could be a while before it cuts again — are “ominous” for bitcoin, which, similar to stocks in the Nasdaq 100, tends to move higher with “dovish” policy, Bannister wrote. Dovish policy aims for lower interest rates to promote economic growth and employment.

Crypto winters typically last about 13 months — meaning the current one may end soon, according to Hougan.

“What could cause the clouds to dissipate? Strong economic growth that sparks an aggressive risk-on rally, a positive surprise on the Clarity Act, signs of sovereign adoption for bitcoin, or just the passage of time,” he wrote.

“To me, no one should hold more than 5% in any concentrated asset,” said certified financial planner Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida, and a member of the CNBC Financial Advisor Council.

However, even with a small stake in crypto, you should “have a process for investing and understanding when to buy and sell,” said Ivory Johnson, CFP, founder of Delancey Wealth Management in Washington, D.C., who is also a member of the Council. He said he sold client holdings when the price was about $80,000, which still netted gains.

If you do sell bitcoin at a lower price than when you purchased, you can use those losses to offset gains you earn from other investments and rebalance your portfolio — so-called tax-loss harvesting. 

Also, be aware of the wash-sale rule, which disallows the loss if you buy the same or substantially identical investment within 30 days.

If you own bitcoin directly, it is not subject to the rule: You could sell and then quickly rebuy and still realize the losses. However, if you own bitcoin through an ETF, any losses at sale are subject to the rule — so you’d have to wait at least 30 days to repurchase.

Also, if your losses exceed your gains for the year, you can use up to $3,000 of the loss to offset other income on your tax return, McClanahan said. Any leftover loss carries forward to future tax years.