Cryptocurrencies continue to decline amid deleveraging after recent gains

Bitcoin has resumed sharp declines after a quiet weekend, falling by more than 2% and struggling to hold above the $115,000 mark. Altcoins are seeing broader losses, with Ethereum down more than 3.5% and XRP shedding nearly 4%.

The sharp pullback in cryptocurrencies comes as market is getting deleveraged following the peaks recorded last week. The trigger was mounting concerns over accelerating U.S. inflation, which ignited this violent correction.

Since last Thursday, more than $1.7 billion in long crypto future positions have been liquidated, according to CoinGlass data. Meanwhile, the open-interest- weighted funding rate for both Bitcoin and Ethereum has fallen to its lowest level in nearly ten days, signaling a continued erosion of bullish momentum.

This downtrend began specifically on Thursday at 12:00 GMT, when U.S. Producer Price Index (PPI) growth accelerated far beyond expectations. That heightened concerns about the impact of tariffs imposed by President Donald Trump. The Wall Street Journal cited experts noting that Thursday’s report suggested further price increases may be coming, where some of which will likely fall on consumers, and that the full impact of tariffs has yet to be fully reflected.

Although the PPI is not typically decisive enough to shift an entire market, the intensity of leverage and the build-up of buyers ahead of the release left the market especially fragile to profit-taking waves and cascading reactions.

This is because concentrated leveraged positioning in crypto assets increases the risk of chain reactions when sharp market reversals occur.

This kind of leverage, however, is not the only concern. The growing trend of corporations hoarding Bitcoin as a core business model raises alarm bells about a maturing bubble. The chief architect of this movement is Michael Saylor, chairman of Strategy, whose company alone holds more than 600,000 BTC, representing nearly 3% of total maximum supply.

Saylor’s strategy of structuring his company’s capital around buying Bitcoin through high-yield preferred shares is fueling concerns about bubble risk. He has leaned on issuing a series of preferred shares with dividend yields of up to 10%. While these outsized payouts are not mandatory, a future loss of confidence in the company or a deep plunge in Bitcoin prices could leave it in a bind, potentially sparking broader market turmoil if it fails to attract financing and liquidity as before, according to Bloomberg.

At the same time, while institutional investors and corporations are racing into crypto, retail participation is steadily shrinking. Data from IntoTheBlock shows that retail holdings have fallen by more than 120,000 BTC to around 17.52 million units as of mid-month from last month’s peak.

Despite supportive regulatory developments that make it easier to invest in crypto, smaller investors are increasingly pressured by high inflation, weak consumer confidence, and a labor market showing signs of strain. For instance, a Wall Street Journal report highlighted a decline in home purchases by individuals and their reduced mobility in search of new job opportunities due to high costs and limited corporate incentives. The report also noted that this weakness in the labor market, while creating opportunities for younger generations, poses real risks to the broader economy.