Bitcoin Experiences Sharp Decline Amid Waning US ETF Demand and Federal Reserve Policy Expectations
In a sudden market shift, Bitcoin faced its most significant drop in nearly two weeks, plunging as much as 7.4%. This downturn mirrors a cooling interest in US exchange-traded funds (ETFs) dedicated to cryptocurrencies and scaled-back predictions of a more lenient monetary policy from the Federal Reserve. As a result, Bitcoin's value dwindled, hovering around $65,400, marking the largest intraday decrease since March 19.
The dip didn't spare other digital assets either, with previously popular meme tokens like Pepe and dogwifhat also experiencing downturns, dragging down a broader spectrum of smaller digital currencies. This downward trend paralleled declines in the equity markets across Europe and the US, suggesting a broader shift away from high-risk investments.
It appears that the vigorous crypto rally earlier this year is running out of steam. Persistent inflation in the US is prompting investors to re-evaluate their expectations for Federal Reserve interest rate cuts, thus strengthening Treasury yields and the US dollar—a challenging scenario for speculative market sectors, including cryptocurrencies.
Since reaching a peak of $73,798 in mid-March, Bitcoin has seen a roughly 10% decrease in value. This decline is partly attributed to a slowdown in daily inflows into US spot-Bitcoin ETFs, which have collected about $12 billion since their inception on January 11. However, recent data indicated a net withdrawal of $86 million from these products, underscoring waning investor interest.
The crypto market appeared particularly vulnerable following the latest batch of US economic data, which unexpectedly revealed an expansion in US manufacturing for the first time since September 2022 and a rise in input costs. This development has led to a reassessment of the Federal Reserve's easing measures, now anticipated to be around 65 basis points—contrary to earlier projections.
Amid these market dynamics, the Bitcoin supply is poised for a significant change with an impending halving event this month, an occurrence every four years that traditionally influences the cryptocurrency's value. Nevertheless, given Bitcoin's substantial gains, quadrupling since the beginning of 2023, some traders question the likelihood of future growth under current market conditions.
The evolving landscape suggests that investors are bracing for a potentially tumultuous period in the digital asset sector, closely watching the interplay between Federal Reserve policies, economic indicators, and the broader financial markets.
Analyst comment
The news is negative for the market. Bitcoin is experiencing a sharp decline due to waning US ETF demand and reduced expectations of a lenient monetary policy from the Federal Reserve. Other digital assets are also facing downturns. The crypto rally is losing steam due to persistent inflation and a reassessment of interest rate cuts. The market is vulnerable, and investors are bracing for a potentially tumultuous period. Bitcoin’s impending halving event may not guarantee future growth.
