Against the backdrop of the sharp downturn in the prospects for a US Federal Reserve interest rate cut, Bitcoin has been in a continuous decline over the past month, with a drop of over 20% from its historical high in March. Bloomberg analysis points out that the sudden drop in Bitcoin is causing concern among investors. They worry that the extreme volatility of Bitcoin may be a precursor to trouble in the global financial markets.
Bitcoin reached a historical high of nearly $74,000 in March this year, but had a dismal performance in April, with a monthly decline of 16%, marking the most severe monthly decline since the FTX crash in November 2022. It then fell by 4% in the first two days of May, reaching a low of below $57,000, the lowest since the end of February.
Will Global Financial Troubles Follow?
According to Bloomberg, the sharp drop in Bitcoin has raised concerns among investors. They believe that the significant volatility in the cryptocurrency market may indicate broader changes in global market risk appetite. Some investors are looking for clues in the turning point of Bitcoin’s trend that may affect changes in the liquidity of other assets.
The recent decline in Bitcoin is mainly influenced by the Federal Reserve, as the prospect of higher and longer interest rates has put heavy pressure on the currency market. In the past few weeks, the Federal Reserve has repeatedly hinted at keeping rates at their current levels for a longer period of time, delaying the timing of rate cuts. This has pushed up US bond yields and strengthened the US dollar, thereby tightening the financial environment.
Charlie Morris, Chief Investment Officer of ByteTree Asset Management, wrote in a report, “Bitcoin’s historical high in March this year was mainly due to the inflow of funds after Bitcoin spot ETFs, such as BlackRock’s, were approved for listing. However, the market demand for these products gradually weakened, and the market did not benefit from the launch of Bitcoin and Ethereum spot ETFs in Hong Kong this week.”
SoSoValue data shows that Bitcoin spot ETFs listed in the US saw a net outflow of $564 million on the 1st, marking the largest single-day net outflow on record. BlackRock’s IBIT also saw its first net outflow since listing, with a net outflow of $36.93 million in a single day.
Macro-Economic Situation Will Continue to Impact Trends
Bitcoin has experienced declines in the month of April in 4 out of the past 10 years. After 3 of those April declines, the average decline in May was 18%. However, Bloomberg believes that if inflation pressure eases, the market may once again bet on the Federal Reserve adopting a more accommodative stance, which could provide some relief for cryptocurrencies and other speculative investment targets.
Against the backdrop of the stagnant progress in combating inflation and the continued strength of the economy in the United States, the Federal Reserve decided this morning to keep the federal funds rate at 5.25-5.5%, maintaining the rate unchanged for the 6th consecutive time. Federal Reserve Chairman Jerome Powell, in a post-meeting press conference, still left open the possibility of interest rate cuts this year, but he also admitted that rising inflation has weakened his confidence in the fading of price pressures.
Youwei Yang, Chief Economist and Deputy General Manager of BIT Mining Ltd., a cryptocurrency mining company, stated that the next three to four months will be less bullish and more risk-oriented. The market will closely monitor inflation, employment, and economic data to guard against any unexpected shocks and to regain confidence after a potential interest rate cut.