Bitcoin’s slide towards $60,000 last week revealed how shifts in investor appetite can quickly turn into a forced sell-off at a time when crypto markets are being re-leveraged behind the scenes.
The largest cryptocurrency by market capitalization fell nearly 14% last week, with about $10 billion in futures long liquidations as traders who had bet on higher prices were forced out of the market.
Bitcoin has since recovered to around $63,000, but the rebound has done little to settle the debate over what caused one of the sharpest declines this year.
Market commentary from Charles Schwab and NYDIG provides a broader explanation. At the same time that Bitcoin futures positioning has become more crowded, funds are rotating toward artificial intelligence, private technology trading, and other high-growth trades.
AI becomes Bitcoin’s rival
Bitcoin’s recent weakness has come to light as investors reevaluate where the strongest speculative returns come from.
In a note shared with CryptoSlate, Jim Ferraioli, Head of Cryptocurrency Research and Strategy at Charles Schwab, said that crypto investors have repeatedly moved into market-dominant momentum trading.
This pattern is playing out across private investment vehicles related to precious metals, oil futures during the Iran conflict, memory stocks, and future IPOs.
In recent months, artificial intelligence has taken on that role.
The scale of AI-related spending has attracted funds across public equities, data center infrastructure, and private markets. For investors who once used Bitcoin as their primary vehicle to express their views on high-growth technology, AI has become a direct competitor for attention and liquidity.
Strategy Executive Chairman Michael Saylor pointed to the pressure last week following Bitcoin’s decline. He said about $400 billion has flowed into AI infrastructure over the past six months, while about $4 billion has flown out of U.S.-listed spot Bitcoin ETFs since mid-May.
This contrast highlighted the challenges facing Bitcoin. Top cryptocurrencies are no longer competing solely with gold, other digital assets, or macro trading. This is measured against the AI cycle, which has become a major growth story across financial markets.
Greg Cipolaro, head of global research at NYDIG, also cited AI as one of several factors impacting Bitcoin and the broader crypto market.
His discussion focused on the overlap between the two investor bases. He said both sectors are attractive to investors looking for exposure to emerging technologies, large markets and the potential for high returns.
Capital is moving towards strong trades as AI stocks continue to outperform.
This change is also visible in the private market. Investors are already bracing for a wave of major technology listings, with companies like SpaceX, OpenAI, and Anthropic seen as potential eventual listing candidates.
These large offers may cause institutions to raise capital or reduce existing positions before committing to new allocations.
In the case of Bitcoin, this results in a decrease in marginal demand at difficult points in the cycle. The circumstances behind the network’s introduction are unclear, but prices have softened as investors compare cryptocurrencies to the currently strong technology trades.
Leverage turns rotation into liquidation
Meanwhile, the withdrawal from Bitcoin became even more severe as traders restructured the risks in the derivatives market before the decline began.
Ferraioli said the move reflects a market that has returned to leverage, even if positioning is still below initial excess levels. He noted that futures open interest reached a high of about $70 billion before falling to about $31 billion in February. By May, it had recovered to about $51 billion.
This recovery showed that traders are returning to leveraged exposure as Bitcoin regains momentum. As the market turned lower, those positions became a source of pressure.
He said about $10 billion in long futures positions were liquidated last week as prices fell, forcing traders who had bet on further profits to exit. The reduction in open interest during the decline suggested that exposure was being removed from the market rather than being replaced with new positions.
Funding rates also returned to negative territory, indicating that the long-term bias that had accumulated during the economic recovery has begun to dissipate. Ferraioli said liquidations against the entire open interest indicate a moderate forced reduction in positions.
This helped explain why Bitcoin’s decline accelerated. Shifts to AI-related assets, ETF outflows and hedge fund selling dampened demand. Subsequently, BTC traders’ derivative positioning increased the pressure as the price started to fall.
In leveraged markets, selling can occur automatically. Traders facing margin pressure will be forced to lose positions, regardless of whether they still believe in Bitcoin’s long-term thesis. This process can drive prices down until sufficient exposure is removed.
This change also showed how rapidly Bitcoin’s support structure has changed. ETF inflows and improving sentiment had supported the market at the beginning of the year. By late May, these flows had weakened, but futures exposure had increased.
Ferraioli pointed out that hedge funds were the main sellers of Bitcoin after it peaked in early May. This pullback also coincided with a decline in futures open interest.
By May 31st, hedge funds had reduced their stake in BlackRock’s iShares Bitcoin Trust (IBIT) from about 29% to about 19%. Investment advisers moved in the opposite direction, adding exposure during the decline, while retail brokerage accounts also reduced their holdings.
The split was indicative of a market where long-term investors are aggressively buying on the bears, while more tactical investors are reducing risk as momentum is lost.
flush but not bottom yet
Considering the above, Ferraioli said recent price movements indicate the market is clearing leverage rather than adding a new wave of speculative exposure.
He said market signals are moving in the same direction. Open interest has declined, liquidations have soared, and funding rates have fallen toward negative territory.
Taken together, these indicators suggest that traders have been reducing long exposures after positioning stalled during Bitcoin’s rebound from February levels.
Liquidations can occur near the end of a decline, but they can also occur during a broader decline, so the market has not yet reached a firm bottom. However, this does not prove that the selling pressure has naturally resolved.
Ferraioli said liquidation needs to be considered in conjunction with open interest and funding rates. A more constructive setup would require open interest to stop falling, capital to stabilize, and forced selling to fade.
The market could remain under further pressure if leverage increases again before spot demand recovers.
On the other hand, some technical and cost-based levels suggest that BTC’s decline may be approaching the depletion zone.
Ferraioli noted that Bitcoin has returned to its February lows, efficient miner production costs, and territory around its 200-week moving average. Traders often keep an eye on these levels for signs that the fire sale is slowing and long-term buyers are starting to re-emerge.
The question is whether these levels of support can compete with broader rotations into AI and civilian technologies. Bitcoin’s recovery to around $63,000 signals a return in demand after a wave of liquidations, but declining ETF flows and hedge fund selling continue to weigh on the market.
The next step will depend on whether new capital returns to cryptocurrencies. If AI-related stocks, infrastructure deals, and expected technology listings continue to pull marginal dollars, Bitcoin may struggle to regain momentum even after a significant re-leverage reset.
