Bitcoin Dips to $122K as Crypto Rally Gets Overheated. What Next?

The crypto rally took a pause on Tuesday with bitcoin (BTC) quickly pulling back from record highs above $126,000 as analysts pointed to signs of crypto rally overheating, at least in the short run.

BTC plunged below $122,000, erasing the past three days of gains and trading 2.4% lower in the 24 hours. The selloff rippled across the crypto market, with XRP (XRP), dogecoin (DOGE), Cardano (ADA) and Avalanche (AVAX) down 5%-7% during the period.

If the price action in bitcoin appears familiar, that’s because it is. Despite a 31% gain year-to-date, bitcoin has given bulls very little chance to bask in their wins. Each record high has seemingly been met with a quick and viscous sell-off. Consider the first run to $109,000 just ahead of the Trump inauguration in January. That reversed lower to $100,000 in hours and to $75,000 within three months.

July’s first move above $123,000 was met with about a 10% decline over the following few days. And similar surge above $120,000 in mid-August presaged about a 15% plunge in ensuing days.

The declines this time around came after bitcoin’s near-vertical 16% pump off the late September lows below $109,000.

Jean-David Péquignot, CCO of options marketplace Deribit, projected in a Monday report that BTC could revisit the $118,000-$120,000 zone shaking out traders who missed the lows and joined the rally late. If that pullback happens, he said, would offer a buying opportunity as technicals and the macro environment aligns for BTC to run higher above $130,000 through the last quarter of the year.

Derivatives market and ETF inflows also got overheated, said Vetle Lunde, head of research at K33. He noted that the past week marked the strongest BTC accumulation of the year, with a combined 63,083 BTC (worth roughly $.7 7billion) added across U.S. ETFs, CME and perpetual futures, surpassing the May peak. The surge was driven by widespread long positioning betting on higher prices without a clear macro catalyst, laying the ground for a pullback.

“Historically, similar bursts in exposure have often coincided with local tops, and the current setup suggests a temporarily overheated market with elevated risk of short-term consolidation,” Lunde said.

Fed’s Miran Says Neutral Rate Should Be 0.5%

Federal Reserve Governor Stephen Miran — a recent Trump appointee — said Tuesday his view of the neutral interest rate has shifted “from one end of the range to the other,” during a discussion at the Managed Funds Association Policy Outlook 2025. He now believes the neutral rate should stand at 0.5%. Miran pointed to tighter immigration restrictions and evolving expectations about the federal deficit as the main factors behind his reassessment.

Miran’s comments suggest that long-term forces shaping the U.S. economy are changing. A smaller labor pool could limit growth, while rising fiscal pressures might keep the Fed’s balancing act between inflation and employment more complex. His remarks come as policymakers debate how much room the central bank has to cut rates without reigniting price pressures.

Fed officials meet at the end of this month to decide about a possible further rate cut, however, without critical data coming from the government as the shutdown continues.

Miran also noted that economic growth in the first half of the year was weaker than anticipated, weighed down by uncertainty over trade and tax policy. But Miran struck a more positive tone for the months ahead, saying much of that uncertainty has now cleared. “With clearer policy signals, I expect a steadier pace of growth,” he said.

Crypto stocks suffer

The broad pullback in crypto prices is hitting the related stocks, led by a 7% decline in Strategy (MSTR) and a 4% loss for Coinbase (COIN). Ether (ETH) treasury companies Bitmine Immersion (BMNR) and Sharplink Gaming (SBET) are down 3% and 7%, respectively.

BItcoin miners are mostly in the red, led by MARA Holdings falling 4% and Riot Platforms (RIOT) 3%. Hut 8 (HUT) is lower by 2%.