by Stephen Dover, CFA, Head of Franklin Templeton Institute
Originally published in Stephen Dover’s LinkedIn Newsletter, Global Market Perspectives. Follow Stephen Dover on LinkedIn where he posts his thoughts and comments as well as his Global Market Perspectives newsletter.
The recent decline in cryptocurrency prices has unsettled parts of the market. I talked with Christopher Jensen, Director of Digital Asset Research and a Portfolio Manager in the Digal Asset Investment Strategies group for his views which I share below. To Chris, Bitcoin’s move below US$80,000—and its brief approach toward the 200-week moving average—appears less like a crypto-specific shock and more like a combination of macro risk-off dynamics and mechanical selling, once key technical levels were breached.
What is driving the selloff in cryptocurrencies?
- Macro conditions remain the primary driver. Uncertainty around interest rates, global liquidity, and geopolitics continues to weigh on all risk assets. Crypto often reacts first to these shifts because it trades 24/7 and carries higher embedded leverage than traditional markets.
- Market structure amplified the move. Exchange-traded fund (ETF) outflows, the unwinding of futures and basis trades, and pockets of forced selling likely accelerated downside momentum once technical support levels broke. These dynamics can produce sharp price moves even in the absence of new fundamental information.
- Institutional behavior has been broadly rational and orderly. Rather than capitulating, institutions have focused on tightening risk controls, trimming gross exposure, and prioritizing liquidity and quality. While some selling was clearly forced and technical in nature, it does not appear to reflect a widespread loss of conviction across institutional investors.
Is this a bear market or a healthy correction?
- In our view, this episode looks more like a valuation and positioning reset than a crisis.
- Unlike prior crypto bear markets, systemic failures, major insolvencies, or breakdowns in core blockchain infrastructure haven’t driven the current breakdown. That said, deleveraging takes time. Historically, crypto downturns tend to resolve through exhaustion and consolidation, not immediate V-shaped recoveries.
- Recent price action suggests the market is still in that process, even if near-term stabilization emerges.
What does this mean for the broader blockchain ecosystem?
- Corrections are often constructive for the ecosystem.
- As speculative activity cools, attention tends to shift toward infrastructure and real-world use cases such as stablecoin settlement, derivatives infrastructure, and early-stage tokenization. Over time, this environment tends to differentiate projects driven primarily by narrative from those delivering measurable economic benefits.
- While capital formation may slow in the near term, the longer-term outcome is often a more resilient and institutionally viable ecosystem.
Is the “digital gold” narrative for Bitcoin undermined?
- What the narrative is:
The “digital gold” concept is a theoretical narrative suggesting Bitcoin could, over time, serve as a store of value similar to gold due to its fixed supply, independence from sovereign monetary policy, and global accessibility.
- What it is not today:
In practice, Bitcoin has not consistently behaved like gold. It remains a relatively young and highly volatile asset and has tended to trade as a liquidity- and risk-sensitive asset, often moving with broader risk markets rather than acting as a defensive hedge.
- Why the gap exists:
Bitcoin’s price behavior reflects factors such as speculative participation, leverage, evolving market structure, and a still-developing investor base, all of which differentiate it from traditional stores of value like gold.
- Longer-term perspective:
The “digital gold” narrative is best viewed as a long-term and contested hypothesis, dependent on broader adoption, deeper and more stable market structure, and reduced volatility. The current environment highlights that any evolution toward such a role remains incomplete and uncertain.
Investment implications
- Risk management remains paramount. We believe volatility is likely to stay elevated as leverage continues to clear, making position sizing and liquidity critical.
- Institutional tone remains constructive. Orderly de-risking suggests rotation and discipline, not structural abandonment.
- Favor patience over precision. For long-term investors, measured and patient dollar-cost averaging appears more appropriate in our view than attempting to time a single market bottom.
- Watch for potential stabilization signals. ETF flow normalization, easing liquidation pressure, and improvements in sentiment and positioning metrics (e.g., fear/greed, technical indicators such as the relative strength index, and market value to realized value ratio) are typical indicators of a base forming.
Bottom line: We believe Bitcoin’s recent drawdown reflects macro pressure and technical selling rather than an existential challenge to crypto. Institutions appear to be behaving prudently, and history suggests the ecosystem often emerges healthier after leverage is fully cleared, even if that process takes time. For investors with a long-term horizon, disciplined accumulation may be more effective than trying to call the exact low.
Copyright © Franklin Templeton Institute
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.
ETFs trade like stocks, fluctuate in market value and may trade at prices above or below their net asset value. Brokerage commissions and ETF expenses will reduce returns. ETF may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.
Commodity-related investments are subject to additional risks such as commodity index volatility, investor speculation, interest rates, weather, tax and regulatory developments.
Blockchain and cryptocurrency investments are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk; an investor can lose the entire amount of their investment. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.
Digital assets are subject to risks relating to immature and rapidly developing technology, security vulnerabilities of this technology, (such as theft, loss, or destruction of cryptographic keys), conflicting intellectual property claims, credit risk of digital asset exchanges, regulatory uncertainty, high volatility in their value/price, unclear acceptance by users and global marketplaces, and manipulation or fraud. Portfolio managers, service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio managers and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.
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