Will Bitcoin Crash?
By Paul Reid
Many traders are wondering if Bitcoin will crash soon. Let’s answer this main question in the first sentence. Yes, bitcoin will likely crash, and by how much might surprise you. Here’s a comprehensive guide to understanding Bitcoin price actions and the mechanisms in play.
ETF inception inflated Bitcoin prices
When Bitcoin ETFs first entered the financial scene, they unlocked a doorway to regulated access for institutional investors. This wasn't merely an expansion of the market—it was a catalyst for an explosive rise in Bitcoin's price, propelling it to the staggering $100K mark we see today. But this boost in BTC volume was a power play, not a natural increase, which opened the door to market manipulation.
Here's the Bitcoin ETF mechanism at play: as institutional investors poured capital into Bitcoin ETFs, the firms managing these ETFs were compelled to acquire substantial amounts of Bitcoin to back the newly issued shares.
Take, for example, Grayscale’s Bitcoin Trust (GBTC), which now holds a commanding lead with assets under management worth about $22.7 billion. This single ETF's demand for Bitcoin significantly influenced the market price. Close on its heels is the iShares Bitcoin Trust (IBIT) managed by BlackRock, with $6.6 billion in assets. And not to be overlooked, Fidelity's Wise Origin Bitcoin Fund (FBTC), which controls around $4.7 billion.
These figures are a testament to the massive institutional muscle that now flows through Bitcoin, much of it indirectly from ordinary stock market investors whose portfolios include these ETFs.
ETF trading volumes don’t directly impact BTC prices
Big investors moving in and out of Bitcoin ETFs might seem like a mechanism that could sway Bitcoin's pricing directly, but in reality, these actions typically don't rattle the core price of Bitcoin immediately. The real trigger for a significant impact on Bitcoin’s price lies in the collective actions of the big investment firms, specifically during mass ETF exits.
If the Bitcoin ETF withdrawals are substantial enough, the ETF fund managers may hedge the loss of investment capital by selling off their own supply of Bitcoin. This liquidation might start as a trickle—but a chain reaction can lead to a deluge, especially if more than one fund sells Bitcoin in bulk. And when market price starts to fall, Bitcoin ETF investors may choose to exit the fund in anticipation of further declines.
It’s a domino effect. Investors leave the Bitcoin fund, the fund managers reduce their Bitcoin holdings, Bitcoin price falls, and more investors lose confidence and exit the fund.
Are investors leaving bitcoin ETFs?
Yes. As of February 2025, there's a noticeable trend of declining holdings in Bitcoin ETFs, reflecting a shift in investor sentiment and strategy.
Data from major Bitcoin ETFs reveal a clear picture: Grayscale's (GBTC) has seen a subtle reduction in investor interest. Similarly, the iShares (IBIT), managed by BlackRock, and Fidelity's (FBTC) are both witnessing shifts in investor behavior.
This forming trend of decreasing holdings in Bitcoin ETFs is significant because it implies that less new capital is entering the Bitcoin market via these investment vehicles. The primary concern here is the potential impact on Bitcoin's price if these trends continue. The market might be nearing a tipping point where the selling pressure from ETF liquidations could lead to a price correction.
Will Bitcoin crash and by how much?
Given the current trends and potential scenarios, a crash is not just a possibility—it could be inevitable and dramatic. Let's explore a speculative scenario where major investment firms decide to partially liquidate their Bitcoin holdings.
Calculating the potential impact of a major sell-off:
If major investment funds begin to liquidate their Bitcoin holdings, this would suddenly and significantly increase the supply of Bitcoin available on the market. With each cycle of redemptions and liquidations, the price of Bitcoin could continue to spiral downward, potentially leading to a crash as the selloff gains momentum.
The continued decline in price could trigger a broader market panic, leading even the staunchest investors to reconsider their positions. This could affect not just individual investors but also institutional participants who might begin to see Bitcoin as too volatile or risky, prompting them to exit the market.
This potential domino effect highlights the interconnectedness of market actions and investor sentiment in the cryptocurrency space. To measure the potential impact, we first need to consider the scale of holdings by major Bitcoin ETFs.
As of early 2025, the three aforementioned ETFs control about $34 billion worth of Bitcoin. If we speculate that other smaller ETFs and investment vehicles add another $10 billion, the total nears $44 billion.
Assuming these ETFs decide to liquidate a significant portion of their holdings, let’s say 25%, this would translate to approximately $11 billion worth of Bitcoin getting dumped onto the market. Such a sell-off could mean Bitcoin’s price could tumble from around $100K to $50K or even lower in a short period, marking one of the most dramatic corrections in its history.
Other markets rally from an ETF exodus
When investors pull their capital out of Bitcoin ETFs, that money doesn't just disappear—it flows into other investment avenues, each with the potential to benefit from this redirected financial stream. The most likely destinations for this capital reflect a mix of stability, growth potential, and traditional value retention.
Gold: the hedging haven asset
As an established safe haven, gold is a perennial favorite for investors seeking stability during times of cryptocurrency volatility. An influx of funds from Bitcoin could bolster gold prices as more investors turn to it for its reputation as a store of wealth. If gold is rallying, it could be an indirect indicator that Bitcoin ETF investors are pulling out. Despite its current high, gold has recently displayed a new bullish sentiment. It’s a space you really need to be watching right now.
Converting to cash: Bullish major currencies
Investors might also shift their funds into major fiat currencies like USD or Euro. These currencies offer liquidity and are often seen as safe assets in tumultuous financial periods. Strengthening demand for these currencies could lead to an appreciation in their value.
Tech Stocks
The technology sector continues to offer exciting growth prospects, especially with ongoing innovations in AI, biotech, and green technologies. Capital redirected from Bitcoin ETFs to leading tech companies or emerging tech startups could drive up stock and indices prices, offering lucrative returns to shifting investors. Watch any stocks related to AI and keep a very close eye on NASDAQ (USTEC) for signs of a shift.
Conclusion
This speculative scenario is not beyond the realm of possibility given the current financial landscape and historical precedents in cryptocurrency volatility.
But keep in mind that these massive investment firms have a lot of experience–and equity–to buffer volatility, and they may prefer alternatives that are less likely to trigger a fire-sale. To manage and survive investor withdrawals from Bitcoin ETFs effectively, investment firms might consider several strategic approaches.
Instead of selling assets hastily in response to client withdrawals, investment firms can plan strategic liquidations during optimal market conditions to minimize impact and maximize returns. This could involve waiting for short-term price recoveries before selling or breaking up large sell orders into smaller, less market-disruptive transactions. This would appear on the charts as a weak but lasting bearish trend with minor retracements along the way.
Using financial derivatives such as options and futures can help firms hedge against downward price movements of Bitcoin. For example, acquiring put options or entering into futures contracts that profit when Bitcoin's price falls can offset losses. Shorting Bitcoin would protect the firms from epic losses, but it would also drive Bitcoin prices lower, as put options and futures contracts have a direct impact on market price.
Alternatively, diversifying their portfolios to other coins could help the firms reduce risk. Is it coincidence that the Nasdaq now seeks SEC Approval for XRP and Litecoin ETFs? Only time will tell.
Now comes the very tricky question: When is it going to happen? There’s no way to forecast such a crash, although some signs are already present. We know that Bitcoin ETF investors are pulling out, but not in such a significant way to prompt the fund managers to reduce their Bitcoin holdings… yet. The chances are, those Bitcoin ETF investors are simply taking profit from the current and relatively stable 100K level. In which case, we can expect small slides of $4000 to $6000 dips before a new price stabilization takes hold.
And remember, Bitcoin prices are very reactive to sentiment. If Bitcoin drops to the $80K zone, this might signal investors to reenter the Crypto space, and if the media helps push the narrative with stories of Trump’s future plans for crypto, the crash might never happen. Your only course of action is to monitor the charts, stay current on all the ETF firm’s reports, and be ready for the next volatility.
I hope this helped to expose the often overlooked mechanisms behind Bitcoin prices. To stay current on coming opportunities and get deepdives that look beyond the charts, add the Exness blog homepage to your favorites and check in from time to time.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Author:
Paul Reid
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.