Bitcoin experienced a nearly 6 per cent decline on Wednesday, marking its the worst monthly performance since April 2022. This downturn occurred as investors withdrew funds from cryptocurrencies in anticipation of an interest rate decision from the Federal Reserve.
April witnessed a substantial drop of almost 16% in the value of the most traded cryptocurrency globally. Investors opted to cash in on substantial gains from a remarkable surge, propelling prices to unprecedented levels surpassing $70,000.
Bitcoin slipped by 5.6%, marking its lowest point since late February. Currently, it is down by 4.8% at $57,001. Meanwhile, Ether saw more modest losses, down by 3.6% at $2,857, also reaching its weakest level since February.
World's largest cryptocurrency's current price stands at a significant 22% lower than March's peak of $73,803, indicating a technical entry into a bear market. Nonetheless, it has surged by 35% since the beginning of this year and has doubled compared to the same period last year, largely attributed to the influx of billions of dollars into newly launched exchange-traded funds since January.
What's weighing on bitcoin prices?
“As Bitcoin continues its descent from its record highs, currently hovering around $56,550, we witness a confluence of factors driving this decline. The anticipation surrounding the Federal Reserve's interest rate decision today, coupled with world's largest crypto exchange Binance’s founder Changpeng Zhao being sentenced to four months in prison on Tuesday, after pleading guilty to charges of enabling money laundering at his crypto exchange, further impacts Bitcoin prices,” Siddharta Gupta, SVP, Business and Strategic Alliances, CoinDCX, told Livemint.
In U.S. premarket trading, stocks associated with cryptocurrency experienced a decline. Shares of the crypto exchange Coinbase witnessed a decrease of 4.6%, while those of mining companies Riot and Marathon Digital saw drops ranging from 4.2% to 4.3%.
On the broader economic front, the Federal Open Market Committee (FOMC) is anticipated to maintain current interest rates. However, investors are increasingly adopting the perspective that the central bank might refrain from rate cuts throughout the year. This sentiment is detrimental to assets sensitive to interest rates, including cryptocurrencies, emerging market stocks and bonds, and potentially even commodities.
Investors have reacted in kind. The ten largest U.S. spot bitcoin ETFs are experiencing their most significant weekly outflow since they were introduced in January.
“BTC as an asset class doesn’t trade in isolation and is affected by macro economic factors. With US inflation higher than expected, investors are rebalancing their positions for higher interest rates, for a longer duration. This doesn’t bode well for risky asset classes and hence has impacted crypto prices adversely. Besides this, BTC prices had almost doubled since Jan on the back of Spot ETF inflows and the halving event. The downturn in prices was amplified by profit booking as well,” Parth Chaturvedi Investment leads CoinSwitch Ventures, told Livemint.
The much-anticipated "halving event" of Bitcoin last month has failed to provide significant support to its price. Following the event on April 20, Bitcoin has experienced a decline of approximately 15%. Numerous investors entered the market in anticipation of this event, which entails a modification to the cryptocurrency's fundamental technology aimed at reducing the pace of new Bitcoin creation.
“While Bitcoin ETFs could attract institutional investors in the long term, their immediate impact may be subdued. Many existing ETFs are based on futures contracts, not directly holding Bitcoin, potentially weakening their influence on spot prices. Furthermore, as per historical halving cycles, it's common to observe sideways movement pre and post-Bitcoin halving, indicating a period of consolidation. This is a normal part of the market cycle,” Gupta added.
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