Digital Asset Faces Selling Pressure as Spot Bitcoin ETFs Falter and Interest Rate Uncertainty Looms
Bitcoin experienced one of its sharpest declines on Monday, triggered by feeble demand for exchange-traded funds (ETFs) holding the cryptocurrency and ongoing uncertainty surrounding US monetary policy.
Key developments in the United States, such as the upcoming presidential debate and inflation data, are likely to further influence Bitcoin’s price trajectory this week, according to market experts.
The largest digital asset saw a plunge of up to 8.1% to $58,528 on Monday, marking its most significant intraday drop since April 13, before stabilizing at $59,191.39. Yesterday, Bitcoin managed to regain some ground, rising approximately 3% to reach $61,000. As of 9:50 am UAE time, it was trading at $60,964.95.
Despite a 12% decline this month, Bitcoin remains significantly higher for 2024, having ended the previous year below $43,000. The cryptocurrency reached a record high of $73,798 in March.
Concerns of increased selling pressure were exacerbated by the announcement from the rehabilitation trustee of Mt. Gox, the Japanese crypto exchange that was hacked over a decade ago. The trustee revealed plans to start repaying Bitcoin and Bitcoin Cash in July, potentially flooding the market with additional Bitcoins.
“The world’s largest cryptocurrency is witnessing cooling demand for Bitcoin ETFs and uncertainty over US interest rates. Developments regarding the failed Mt. Gox exchange have added to the negative sentiment in the crypto space,” stated Lukman Otunuga, senior market analyst at forex trading broker FXTM.
The upcoming Biden vs. Trump presidential debate on Thursday and the Federal Reserve’s preferred inflation gauge on Friday could further shake Bitcoin’s stability. Any mention of crypto policy during the debate or an inflation report that influences Fed interest rate cut expectations could inject more volatility into Bitcoin, Mr. Otunuga added.
The global digital asset sector has faced a tumultuous few years, entering a “crypto winter” in 2022 following the collapse of several major platforms, including Celsius, Three Arrows Capital, and Sam Bankman-Fried’s FTX.
The prospect of prolonged higher interest rates is also weighing on the cryptocurrency market. Anticipated interest rate cuts by the Federal Reserve this year could inject more liquidity into the market, potentially benefiting high-risk assets like Bitcoin, similar to post-pandemic economic stimulus measures.
Excitement surrounding US spot Bitcoin ETFs had previously driven the token to a record high of about $74,000 in March. The Securities and Exchange Commission approved 11 spot Bitcoin ETFs in January, including those from major players like BlackRock, Ark Invest, and Fidelity. However, enthusiasm has since waned.
The Bitcoin network underwent a halving in April, a four-year event that reduces the new supply of the token and is often viewed as a bullish precursor by some analysts. However, the supply curbs have failed to provide significant support for prices.
The recent sell-off is attributed to financial strains on Bitcoin miners, who have offloaded more than $2 billion worth of Bitcoin this month to counteract dwindling revenues, according to Mohamed Hashad, chief market strategist at Noor Capital. “The root of the miners’ woes lies in the Bitcoin halving event in April, which halved their rewards,” Mr. Hashad explained. “This, combined with the decreasing difficulty rate – a measure of the computational effort required to mine a Bitcoin block – has led to record-low revenues for miners.”
Data compiled by tracker Coinglass indicated that over $210 million worth of bullish bets in crypto were liquidated in the past 12 hours. Bitcoin investment products experienced around $600 million in outflows for the second consecutive week, the largest over a two-week period since the US approved ETFs to hold the largest cryptocurrency in January.
“The cryptocurrency’s decline has adversely affected the ETF market. While Bitcoin ETFs had initially driven Bitcoin’s price to new highs earlier this year, the recent sell-off has resulted in an outflow of around $200 million from these ETFs,” Mr. Hashad said. “Despite the current bleak outlook, some experts believe that the selling pressure could ease once the mining industry stabilizes. However, for now, the downward trend persists, dragging both Bitcoin and its associated ETFs into uncertain territory.”