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Bitcoin (BTC) experienced a significant price drop this week, drawing the attention of global investors who often see such directional movements in cryptocurrencies as indicators of the global market’s future. At the time of writing, BTC has fallen by 4.5% to $57,453, with a market value of $1.13 trillion.
Critical Period for Bitcoin
On the weekly chart, Bitcoin‘s losses have reached double digits, and investors expect further declines towards $50,000. April marked Bitcoin’s worst month since the collapse of FTX in November 2022, with a 16% price drop. Some investors are closely monitoring Bitcoin’s movements to gauge changes in liquidity dynamics that could affect other cryptocurrencies. Recently, Bitcoin prices have fallen amid signals from the Federal Reserve that interest rates will remain high for an extended period.
This stance has tightened financial conditions by increasing Treasury yields and the value of the dollar. The FOMC, in its latest decision, chose to keep US interest rates unchanged at 5.25% to 5.50% since July 2023. Many in the cryptocurrency community had hoped for a rate cut by the US Fed on May 1, which could have boosted stock market valuations and thus cryptocurrencies.
However, Jerome Powell stated that the Fed intends to keep interest rates steady until inflation reaches the 2% target level. Charlie Morris, Chief Investment Officer at ByteTree Asset Management, wrote in a note to investors:
Bitcoin is our favorite. This situation is a warning that there could be trouble ahead in financial markets. However, we can be confident that it will recover at some point. The recent strengthening of the US dollar could indicate that the market will tighten in the future.
Current Status of Bitcoin ETFs
While the launch of spot Bitcoin and Ethereum ETFs in Hong Kong generated some excitement, the mood in the US market was largely bearish. On Wednesday, US spot Bitcoin ETFs witnessed their first major outflow since the inception of BlackRock’s IBIT, totaling $560 million.
Demand for the products then decreased, and the markets did not receive support this week from the launch of spot Bitcoin and Ethereum ETFs in Hong Kong. Unprecedented levels of discounts in certain US portfolios’ net asset values highlighted the challenges that could arise from Bitcoin’s volatility. Youwei Yang, chief economist and vice president of crypto miner BIT Mining Ltd., said:
The market will be less bullish and more risk-focused over the next three to four months as it closely monitors inflation, employment, and economic data or gains confidence in possible interest rate cuts.
