Sygnum Bank Chief Investment Officer Fabian Dori says a short-term liquidity squeeze is behind the recent crypto sell-off, with further downside possible, though improving fundamentals could support a recovery.

Bitcoin (BTC $71,385.87) is likely to remain volatile as markets contend with thin liquidity and weak investor sentiment. “Volatility is likely to stay high in the short term, and prices could even go lower,” Dori told CoinDesk. “Trust and confidence for investors to build exposure are very limited.”

The gap between gold, which has held steady, and riskier assets like Nasdaq tech stocks and bitcoin highlights market fragility. Yet Dori cautions there’s no single cause driving the sell-off: “It’s a combination of factors that have built up over recent months.”

Macro headwinds, uneven institutional flows, sticky inflation, and shifting expectations for Federal Reserve rate cuts have curbed risk appetite. Geopolitical flare-ups, thin ETF flows, liquidity stresses, and leveraged liquidations have magnified downside moves, repeatedly testing key support levels.

“Crypto has been on thin ice for some time,” Dori said. Long-term holders are cautious of bitcoin’s four-year cycle, leaving fewer strong hands to absorb volatility.

Liquidity pressures are compounded by macro factors. Increased U.S. Treasury issuance has raised balances in the Treasury General Account at the Federal Reserve, effectively pulling liquidity from markets. “Crypto, being highly liquidity-sensitive, was heavily affected,” Dori noted. A record liquidity event on Oct. 10 further reduced market depth, while uncertainties around bitcoin’s store-of-value narrative, quantum computing risks, and delayed U.S. legislation like the Clarity Act have reinforced caution.

Bitcoin has drawn down roughly 40–50% from recent highs, levels last seen in 2022. Dori rejects comparisons, noting today’s regulatory clarity, institutional adoption, and stronger counterparty risk make the environment fundamentally different.

He sees the current weakness as a short-term liquidity issue rather than a structural problem. Positive macro signals—including stronger ISM data and easing inflation—could allow the Fed to resume rate cuts, improving liquidity conditions.

Crypto fundamentals remain constructive. Stablecoin growth, robust activity on Ethereum and Solana, and ongoing institutional adoption provide a foundation for recovery. “Once sentiment normalizes and liquidity improves, crypto should narrow its gap with traditional assets,” Dori said.

For now, volatility may persist and prices could test lower levels—but structurally, the market is stronger than it appears.