AI mania is helping cap crypto's upside, Wintermute says

Market Overview - Bitcoin (BTC) has decreased to $68,500, failing to reclaim the $70,000 mark after a brief period above that level over the weekend. The CoinDesk 20 Index (CD20) has also dropped by 0.23% in the past 24 hours. The market is stabilizing after a decline to $60,000, which erased all gains since Donald Trump's presidential election victory in November 2024 [1][2]. Liquidations and Market Dynamics - The recent decline in Bitcoin prompted over $2.7 billion in liquidations, primarily affecting leveraged positions. This selloff may not indicate a fundamental shift in the crypto market but could be linked to declining liquidity in the broader financial ecosystem [2]. - Raoul Pal, CEO of Global Macro Investor, attributed the selloff in crypto and tech stocks to temporary drains in U.S. dollar liquidity related to Treasury operations and government funding dynamics [2]. Impact of Artificial Intelligence - Investments in artificial intelligence (AI) have been absorbing available capital, negatively impacting other sectors, including cryptocurrencies. A note from Wintermute indicated that removing AI companies from the Nasdaq 100 index nearly eliminates the negative skew for crypto [3]. - Jasper De Maere, a trader at Wintermute, stated that the underperformance of crypto during rallies and increased selling during downturns can be largely explained by the rotation into AI investments. For crypto to outperform again, a reduction in AI investment is necessary [4]. Japanese Market Influence - Following Prime Minister Sanae Takaichi's election victory, Japanese government bond yields have risen but are now dropping, which may prevent further unwinding of the yen carry trade. This could potentially lead to up to $5 trillion being reinvested in Japan [4]. - Arthur Hayes, co-founder of BitMEX, suggested that Takaichi's victory could lead to a depreciation of the yen against the dollar, making the Japanese currency less attractive and potentially benefiting risk assets, including cryptocurrencies [5]. Current Price Trends and Investor Sentiment - Prices are expected to remain rangebound for the time being. The Coinbase Premium Index, which measures demand from large U.S. investors, remains negative, and spot bitcoin ETF flows show hesitance, with daily net inflows at just $145 million [6]. - Institutional flows through ETFs and derivatives are currently influencing market direction, while retail investors are diversifying their attention across other asset classes [6].