Is Bitcoin Headed To $40,000?
Bitcoin ATM machines, Hong Kong, China. (Photo by: Bob Henry/UCG/Universal Images Group via Getty ... More Images)
Question: How would you feel if you owned Bitcoin and it dropped by 60% or more in the coming months? This may sound extreme, but such a scenario has occurred before – and it could happen again. So far this year, BTC has already seen a sell-off, falling from about $109,000 in January to about $85,500 currently - a decline of over 20%. The sell-off has been driven by a mix of factors, including the major hack on the Bybit crypto exchange in February 2025 - a security breach that heightened concerns about the security of cryptocurrency platforms. Moreover, the broader equity markets as well as cryptocurrencies are seeing a selloff, driven by growing concerns of a recession in the U.S. following President Donald Trump's tariffs on key trading partners.
Here's the point: During a downturn, Bitcoin could suffer significant losses. Recent evidence from 2022 and 2020 shows that BTC lost over 60% of its value within just a few quarters. Now, BTC is already 20% in about two months. So, could the crypto bellwether continue its decline and fall to levels of about $40,000 if a similar scenario were to occur? Of course, cryptocurrencies tend to be more volatile than a diversified equity portfolio – so if you seek growth with less volatility, consider the High-Quality portfolio, which has outperformed the S&P 500 and delivered returns exceeding 91% since its inception.
Fueled by Trump's election victory and the subsequent expectation of a more crypto-friendly regulatory environment, the cryptocurrency market witnessed a substantial rally. Bitcoin led the surge, climbing from under $70,000 in early November of the prior year to surpass $109,000 by January 19th. The announcement of a strategic crypto reserve for the U.S. further boosted Bitcoin's appeal. Nevertheless, after this rapid climb, investors began securing profits - particularly in response to increasing macroeconomic uncertainties.
The new tariffs imposed earlier this month by the Trump administration on goods from Canada, Mexico, and China triggered market unease and contributed to the drop. Beyond this immediate impact, broader macroeconomic worries are also influencing investor behavior. Investors are generally reducing their exposure to riskier assets like Bitcoin due to concerns about the overall global economic outlook and interest rates.
While inflation concerns have somewhat moderated, they remain a significant consideration - particularly as President Trump's assertive policies on tariffs and immigration have renewed apprehensions about potential inflationary pressures. This uncertainty, coupled with the U.S. economy's potential for contraction, further elevates the risk of a recession.
Adding to this complex picture is an increasingly unstable global geopolitical environment. Persistent conflicts, such as the Ukraine-Russia war, renewed tensions in the Middle East, escalating trade disputes, and strained relationships with traditional allies like Canada, Mexico, and European nations - all introduce substantial additional risks to the market landscape. See our analysis here on the macro picture.
Given these intricate dynamics, investors should exercise caution and vigilantly monitor key macroeconomic indicators when evaluating positions in cryptocurrencies or similar investments.
BTC has seen an impact that was worse than the broader equity markets, including the S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on stocks? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
• BTC fell 68% from a high of $47,738 on January 2, 2022 to $15,480 on November 21, 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• Bitcoin fully recovered to its pre-Crisis peak by March 2024
• Since then, the currency has increased to a high of around $109,000 on January 20, 2025 and currently trades at around $85,500.
• BTC fell 63% from a high of around $10,500 mid-February 2020 to $3,850 on March 13, 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The coin fully recovered to its pre-Crisis peak by late July 2020.
Cryptocurrencies remain high-risk assets, and their future performance hinges on regulatory and macroeconomic developments. Concerned about crypto volatility? Explore the High Quality Portfolio, a carefully curated selection of 30 stocks that has consistently outperformed the S&P 500 over the past four years.
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