Bitcoin's 7% Bounce Can't Hide Crypto's Deeper Struggles

$2 billion vanished in a single weekend. That's how much crypto derivatives got liquidated as Bitcoin tumbled to its worst levels in months.

Monday brought a modest reprieve. Bitcoin bounced 7% from its weekend lows, trading around $78,700 by midday U.S. time. But that still leaves the world's largest cryptocurrency down more than 10% from a week ago and struggling to reclaim the $80,000 threshold. Ethereum managed a 2% daily gain while nursing a brutal 19% weekly decline.

When Leverage Turns Toxic

This wasn't your typical weekend crypto volatility. According to 21shares' Chief Investment Strategist Adrian Fritz, the selloff "broke key short-term support" through a cascade of forced deleveraging. Translation: traders using borrowed money got wiped out, and their automatic liquidations accelerated the downward spiral.

The timing made everything worse. Weekend trading typically sees lower volumes, so when $2 billion in derivatives positions got forcibly closed, the price impact was amplified. It's a stark reminder of crypto's structural vulnerabilities—how quickly leveraged positions can turn a correction into a rout.

Meanwhile, traditional markets painted a completely different picture. The Nasdaq and S&P 500 each gained 0.6%, while the Dow Jones climbed 0.9%. The Dow just completed its ninth consecutive monthly gain, one of its longest winning streaks ever. Market analyst Ryan Detrick noted that stocks tend to perform well even after such extended runs.

Crypto Stocks Can't Catch a Break

Bitcoin's modest recovery did little to help crypto-adjacent stocks, which continued bleeding across the board. Robinhood dropped 9%, Circle fell 5%, while Coinbase and MicroStrategy each declined 3%.

This disconnect reveals something important: investors aren't just worried about crypto prices—they're questioning the entire ecosystem's resilience. When a company like MicroStrategy, which holds massive Bitcoin reserves, can't benefit from even a modest crypto bounce, it suggests deeper skepticism about the sector's fundamentals.

Even traditional safe havens showed stress. Gold and silver remained volatile after their worst single-day drop since 1980 on Friday, highlighting how few assets escaped last week's turbulence.

Strong Economy, Weak Crypto

Monday's economic data painted a surprisingly robust picture. The ISM manufacturing PMI hit 52.6, crushing expectations of 48.5 and marking the first manufacturing expansion in 12 months. It's the strongest reading since 2022.

Yet this economic strength seemed to hurt rather than help crypto. As traditional markets rallied on the good news, digital assets remained stuck in their funk. The contrast suggests investors are increasingly viewing crypto as a speculative play rather than a legitimate alternative to traditional assets.

All eyes now turn to Friday's January jobs report, which could influence whether the Federal Reserve resumes rate cuts after pausing them last week. In a world where monetary policy drives asset prices, crypto's inability to benefit from economic optimism is telling.