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Investors are still feeling bearish about Bitcoin. But why? And how long will it last?

The narrative that has taken shape over the past two years is that Bitcoin follows US stocks as a “risk-on” asset – which has fallen in value since the Federal Reserve began aggressively raising interest rates last year.

And it’s still true. But there are other factors at play: Investors are in a state of limbo as a tough regulatory crackdown, and the collapse of major crypto-friendly bank Silvergate has them either selling or sitting still, according to the experts we spoke to Decrypt.

Regulators have been going after crypto since 2023 started: SEC Chairman Gary Gensler wants to crack down on the industry as a whole and all the digital assets he considers unregistered securities – which is, as we’ve learned, basically everyone, except Bitcoin.

In January, the regulator loaded crypto broker Genesis and the Winklevoss-founded exchange Gemini to offer unregistered securities. Last month, SEC fined crypto exchange Kraken $30 million for violating securities laws.

The world’s largest crypto exchange Binance has also been on shaky ground. Last month, news fell that the stock exchange expected to pay fines to determine the number of regulatory probes in the business.

And perhaps the latest news to make investors tremble is Silvergate: the crypto-enabling bank today announced it would cease operations. This comes after the company last week delayed the annual SEC 10-K report because it needed “additional time” to allow an independent accounting firm to complete certain audit procedures — sending the stock tumbling.

“We’re noticing a shift in sentiment following Silvergate’s bankruptcy rumors last week,” Blockchain analyst Kaikos Dessislava Aubert said Decrypt. “Bitcoin funding rates turned negative over the weekend, hitting their lowest level in 2023.”

All this comes after one terrible year for digital assets in 2022 – which ended spectacularly with the mega digital asset exchange FTX breaks. Its former CEO and co-founder Sam Bankman-Fried is now charged with 12 charges for allegedly mismanaging the business and defrauding both customers and investors.

“Overall, liquidity conditions have deteriorated significantly since the collapse of FTX and volatility is unlikely to dissipate,” Aubert added.

CoinShare’s head of research James Butterfill told Decrypt that current investor sentiment is “more to do with the regulatory crackdown and the question of ‘who will regulators target next'” over the Federal Reserve’s moves.

Indeed, for the fourth week in a row, investors have pulled money out of crypto funds, largely due to “concerns about regulatory uncertainty for the asset class,” a Monday CoinShares report knew.

Butterfill also said investors are worried about Silvergate’s woes.

Trader Ryan Scott told Decrypt that “crypto has underperformed stocks and this is likely due to FUD [fear, uncertainty and doubt]” around regulatory concerns surrounding Binance and banking in crypto.

Since the start of the COVID-19 pandemic, and following an unprecedented injection of liquidity into the market by the Federal Reserve in an attempt to stimulate an ailing economy, crypto has closely followed the movements of the stock market. Retail and amateur investors, flush with cash, “ape in” to crypto and meme stocks just the same through 2020 and into 2021 as a “frothy” the market rose to new heights.

These days, that correlation still holds, just in the other direction: Investors sold off “risk assets” like Bitcoin and tech stocks as the Fed ramped up its aggressive monetary policy, raising interest rates again and again in an attempt to get prices and records. – High inflation under control.

The market has mostly traded sideways in recent months, but a turning point could come as soon as Friday, when the US government drops its latest report on non-farm payrolls, dictating the Fed’s next move on whether or not to raise interest rates yet more.

“It can really swing the sentiment,” Butterfill said.