The market is actively seeking the reasons behind this plunge, and Wintermute strategists believe that this crypto winter will "thaw" more quickly.

On February 7th, Bitcoin experienced its worst weekly decline in over three years. However, for some die-hard crypto enthusiasts and the largest and most well-known bulls, the worst part is that they are not clear about the exact reasons for the plunge. Michael Novogratz, CEO of crypto merchant bank and trading firm Galaxy Digital, stated that there are many theories circulating about this round of selling, ranging from investors shifting their focus to prediction markets and other high-risk bets, to widespread profit-taking after a booming bull market, with no definitive trigger. Here are some of the mainstream analyses currently prevailing in the market:

· Emerging New Trends: Prediction markets, gold, silver, artificial intelligence, and so-called Meme stocks have recently been vying for traders’ attention, diverting focus away from cryptocurrencies. In the past, Bitcoin was a consensus choice with asymmetrical advantages; now, there are AI, prediction markets, and many other areas for speculation.

· Potential Increase in Supply: Wall Street is attempting to capitalize on the popularity of cryptocurrencies by launching Bitcoin ETFs, tokenized products, and derivatives. Their surge may not affect the absolute quantity of tokens like Bitcoin and Ethereum, but some investors believe their emergence diminishes Bitcoin’s appeal as a scarce asset. Some analysts say that by launching ETFs and complex derivatives, Wall Street allows investors to bet on Bitcoin prices without having to buy or hold actual tokens.

· New Regulatory Expectations: Some investors speculate that Kevin Warsh, the next Federal Reserve Chair nominee nominated by Trump, may have contributed to the decline in crypto prices. Warsh is considered more hawkish in using interest rates to curb inflation and favors a strong dollar. Higher interest rates and a stronger dollar typically harm alternative assets like gold and cryptocurrencies, reducing their attractiveness to investors.

· The Setback of the CLARITY Act: The ongoing discussions around the CLARITY Act aim to establish a clear regulatory framework for the rapidly growing industry. However, disputes between trading platforms and traditional banks have stalled this momentum. Without this measure, many financial firms are hesitant to integrate digital assets into their operations. Unless a compromise is reached, this dispute could deprive the crypto market of a catalyst that could sustain its upward momentum.

· Pure Profit-Taking: Novogratz and some other investors believe that the sell-off was largely driven by investors eager to lock in profits. These profits accumulated amid the FOMO atmosphere of 2024, when Trump was elected and promised to make the US the world’s crypto capital, amid rising Bitcoin, Ethereum, and other digital tokens. Some analysts think this crypto winter could thaw faster than in the past. No key companies have gone bankrupt or faced charges, which previously triggered confidence crises during past crashes. For believers, the rebound on Friday convinced them that cryptocurrencies can always bounce back, which is part of why they continue to invest. “Infrastructure is stronger, stablecoin adoption continues to grow, and institutional interest hasn’t disappeared — it’s just temporarily on hold,” said Jasper De Maere, strategist at crypto trading firm Wintermute. “Interest in these investments can return very quickly.”