Bitcoin Trapped by Double Compression in Equity Markets, Bank of America Warns

Leading financial institution Bank of America recently expressed deep concerns about the impact of double compression in the equity markets on Bitcoin. According to an analysis referenced from NS3.AI, this flagship cryptocurrency no longer functions as an independent diversification instrument but increasingly exhibits equity beta characteristics with high price sensitivity to global stock market movements.

Changes in Bitcoin Behavior and Rising Volatility

Bank of America’s research highlights a significant transformation in Bitcoin’s dynamics amid a volatile market landscape. Previously viewed as a stable alternative asset, Bitcoin now reacts similarly to high-risk technology stocks. This increased volatility creates conditions vulnerable to sudden market pressures, especially when institutional investors rapidly sell their positions.

Structural Pressures and Rising Risk Factors

Bank of America identifies several fundamental challenges that reinforce overall equity market compression. Declining corporate earnings, a surge in new IPO offerings, and rising leverage among investors add to market sentiment burdens. Additionally, the software sector faces uncertainty related to overly optimistic artificial intelligence expectations, creating further nervousness that could trigger a chain of sell-offs across various risk assets.

Liquidation Mechanisms and the Role of Bitcoin ETFs

The greatest threat comes from interconnected liquidation mechanisms across markets, particularly through Bitcoin ETF instruments. When market liquidity contracts and institutional sentiment shifts to a defensive stance, capital outflows from Bitcoin can accelerate exponentially. The structure of Bitcoin ETFs tied to cryptocurrencies allows for automatic sales and forced liquidations when volatility reaches critical levels, creating a domino effect that can deepen market compression and harm holders in the short term.