Crypto Market Weakens as Bitcoin Falls and Digital Asset Stocks See Sharp Losses

Bitcoin led crypto markets lower on Tuesday, falling about 1% over the past 24 hours to trade just below $88,000. The decline came even as traditional safe-haven assets such as gold, silver, and copper surged to record highs earlier in the session, before easing slightly in afternoon trading. U.S. equities showed modest strength, with the Nasdaq Composite rising around 0.45%, highlighting a growing divergence between crypto assets and broader financial markets.

While the price drop in bitcoin was relatively contained, crypto-related stocks experienced significantly steeper losses. Digital asset treasury companies, which have already been among the worst performers this year, were hit hardest. Strategy (MSTR) fell 4.2%, XXI dropped 7.8%, ETHZilla plunged 16%, and Upexi declined 9%. Other major crypto-linked firms, including Gemini, Circle, and Bullish, were each down roughly 6%, underscoring broader risk aversion toward the sector.

Analysts at QCP Capital pointed to tax-loss harvesting as a key factor behind the year-end selling pressure, especially given thinner holiday liquidity. Investors often sell losing positions to realize capital losses and reduce tax liabilities, which can amplify downside moves. Paul Howard, senior director at trading firm Wincent, added that portfolio managers typically reduce exposure to risk assets near year-end, both due to holidays and balance-sheet considerations that may discourage holding cryptocurrencies.

QCP also highlighted a continued decline in open interest across bitcoin and ether perpetual futures, down approximately $3 billion and $2 billion respectively. Reduced leverage has left crypto markets more vulnerable to sharp price swings, a risk heightened by a record Boxing Day options expiry representing over half of Deribit’s total open interest. Despite easing downside bets, lingering $100,000 bitcoin call options suggest cautious optimism for a potential Santa rally, though QCP expects any holiday-driven volatility to fade in January.

Looking ahead, Howard expects prolonged consolidation, noting it could take many months for the crypto market to recover from October highs and return toward a $4 trillion total market capitalization, compared with roughly $2.6 trillion today.