Bitcoin Selloff Leaves Half of Supply Underwater as Tether Briefly Overtakes Ether
Bitcoin’s recent retreat below $60,000 has pushed more than half of its circulating supply into loss-making territory, according to Bloomberg’s Markets page. The selloff capped Bitcoin’s worst week since the collapse of Sam Bankman-Fried’s FTX exchange in 2022. For a few hours last weekend, Tether’s USDT stablecoin briefly became more valuable than Ether, a development Bloomberg described as a “reality check” for crypto markets. These events underscore renewed stress in digital assets, driven by market psychology, leverage, and trust.
Bitcoin’s Worst Week Since FTX Collapse
Bitcoin fell below $60,000 last Friday, marking its most severe weekly decline since the FTX implosion in November 2022. The drop pushed more than half of Bitcoin’s circulating supply into loss, meaning the majority of holders are now sitting on unrealised losses. This is a stark reversal from earlier in the year when Bitcoin hit all-time highs above $73,000, buoyed by spot ETF approvals and institutional inflows.
The severity of the selloff has revived Wall Street’s habit of trying to call a bottom, but the price action still reflects deep caution. Bitcoin has since rebounded slightly from the $60,000 level, but the recovery remains tentative. Traders are watching key support levels, with many fearing further downside if macroeconomic conditions worsen.
Bloomberg’s comparison of the week’s decline with the FTX collapse signals that traders viewed the move as more than a routine pullback. The FTX event shattered confidence in crypto exchanges and led to a prolonged bear market. While the current selloff is not driven by a single exchange failure, the scale of the decline has reignited fears about market fragility.
Tether Briefly Overtakes Ether: A Reality Check
In a striking development, Tether’s USDT stablecoin briefly became more valuable than Ether by market capitalisation last weekend. This temporary flip highlighted how even the sector’s largest assets can be overtaken by a stablecoin in market value. Bloomberg framed the event as a “reality check” for crypto markets, underscoring the shift in investor sentiment towards risk-off positioning.
USDT is the largest stablecoin by market cap, used primarily for trading and as a store of value during volatile periods. Its temporary rise above Ether reflects a flight to safety, as investors park funds in dollar-pegged assets rather than risk exposure to volatile cryptocurrencies. Ether, the second-largest cryptocurrency by market cap, has been under pressure amid broader market weakness and concerns about network activity.
The flip was short-lived, but it serves as a reminder of how quickly sentiment can reverse in crypto. When a stablecoin outranks a major asset like Ether, it suggests that traders are prioritising capital preservation over speculation. This dynamic is often a precursor to further downside, as liquidity drains from riskier assets.
Market Psychology and Leverage Under Strain
The latest selloff is not just about price volatility, but about market psychology, leverage, and trust. When more than half of Bitcoin supply is in loss, it creates a feedback loop of selling pressure. Holders who bought near the top may be forced to liquidate if prices fall further, amplifying the downturn. Leveraged positions, which have grown significantly in recent months, add to the risk of cascading liquidations.
Bloomberg’s framing suggests that investors are reducing risk and reassessing whether the recent rebound has real staying power. The crypto market has been buoyed by optimism around spot Bitcoin ETFs and the upcoming halving event, but the selloff has tempered those expectations. Traders are now questioning whether the rally was driven by genuine demand or speculative froth.
The comparison to the FTX collapse is particularly telling. That event wiped out billions in value and led to a prolonged bear market. While the current environment is different, the scale of the decline has shaken confidence. Investors are watching for signs of systemic stress, such as exchange outflows or stablecoin redemptions, that could signal a deeper crisis.
Regulatory and Macro Implications
The selloff comes amid a backdrop of regulatory uncertainty and macroeconomic headwinds. The US Securities and Exchange Commission has continued its crackdown on crypto exchanges and DeFi platforms, creating a chilling effect on innovation. Meanwhile, interest rates remain elevated, with the Federal Reserve signalling that cuts may be delayed. Higher rates reduce the appeal of risk assets like cryptocurrencies, as investors can earn attractive yields in traditional markets.
Bloomberg’s coverage highlights how these factors are converging to create a challenging environment for digital assets. The brief flip of USDT over Ether is a symptom of this risk-off mood, as traders seek safety in stablecoins. If the selloff deepens, it could trigger further regulatory scrutiny, as policymakers may view the volatility as evidence of market instability.
For broader markets, the crypto selloff is a reminder of the interconnectedness of risk assets. Bitcoin’s correlation with tech stocks has increased in recent years, meaning that a sustained downturn could spill over into equities. Conversely, a recovery in crypto could signal renewed risk appetite, but that seems unlikely in the near term given the current headwinds.
Analytical Closing: A Market in Transition
The events of the past week mark a significant shift in crypto market dynamics. Bitcoin’s drop below $60,000, leaving half of supply in loss, and Tether’s brief overtaking of Ether are not isolated incidents. They reflect a market in transition, where the euphoria of early 2024 has given way to caution and deleveraging.
The comparison to the FTX collapse is apt, not because the current situation is identical, but because it highlights how quickly sentiment can turn. Traders are now focused on whether Bitcoin can hold key support levels and whether Ether can reclaim its position above USDT. The answers to these questions will determine the trajectory of the market in the weeks ahead.
For now, the data suggest that investors are prioritising safety over speculation. The brief flip of USDT over Ether is a stark reminder that in crypto, even the largest assets can be eclipsed by a stablecoin when fear takes hold. As the market digests these developments, one thing is clear: the road to recovery will require more than just a price rebound. It will require a restoration of trust and a reassessment of the fundamentals that drive this asset class.
For more on Bitcoin’s price action and market trends, see our Bitcoin coverage.
