The prospect of higher-for-longer interest rates is weighing on crypto, underlined by deepening Bitcoin losses after the token’s worst monthly drop since the collapse of Sam Bankman-Fried’s FTX empire in November 2022.
The largest digital asset slumped almost 16% in April as a mania for US spot-Bitcoin exchange-traded funds flatlined after earlier lifting the token to a record high of almost $74,000 in March. Losses continued on Wednesday, with Bitcoin dropping as much as 5.6%.
Crypto prices rebounded briefly, along with equities, on Wednesday as the Federal Reserve said it will shrink its balance sheet at a slower pace to ease strains in money markets and Chair Jerome Powell downplayed the possibility of rate hikes. However, Bitcoin and stocks resumed declines as Powell made it clear that higher-than-expected inflation data has eroded the confidence needed to lower borrowing costs.
“I do think it’s a little bit more dovish than the market was expecting the last few days, since the market was afraid of the Fed turning hawkish today,” said Youwei Yang, chief economist and vice president of crypto miner BIT Mining Ltd. Still, he added, the drop in Bitcoin from $73,000 to current levels around $57,000 showed some worry by traders who “may see some risk in the global macro environment that the Fed or general investors are not seeing yet.”
Tuesday’s debut of Bitcoin and Ether ETFs in Hong Kong also failed to provide a tailwind earlier Wednesday. Trading volume for the six vehicles totaled $12.7 million on the first day, sizable locally but dwarfed by the $4.6 billion achieved by the US products when they went live in January, according to Bloomberg Intelligence.
Delayed Cuts
Bitcoin fell 4.3% as of 4:45 p.m. in New York to trade near a two-month low just above $57,300. Smaller tokens were mixed, with Ether down 1%, XRP, Solana and Polkadot higher, while the meme-crowd favorite Dogecoin nursed a loss of about 4%.
The recent moves higher in Treasury yields and real rates have been “toxic for gold, Bitcoin and US equity,” Chris Weston, head of research at Pepperstone Group Ltd., wrote in a note.
Historical patterns suggest May is unlikely to bring relief for crypto bulls. The month has seen declines in Bitcoin for three straight years, with an average drop of 20%, according to FxPro analyst Alex Kuptsikevich.
“In terms of seasonality, May is not a good month for BTC,” Kuptsikevich said in a note.
ETF Outflows
A cooldown in demand from exchange-traded fund investors has also weighed on the market. A net $182 million was pulled from the group of almost a dozen US spot-Bitcoin ETFs last month through April 29, according to data compiled by Bloomberg. The funds saw $4.6 billion in net inflow in March.
“ETFs created a new avenue for engagement that has been wildly popular, much more popular than anyone’s expectations,” Seth Ginns, Coinfund’s managing partner and head of liquid investments, said during a Bloomberg Television interview on Tuesday. That “led to Bitcoin moving up very quickly, much further than what has been anticipated.”
The Bitcoin network underwent a so-called halving last month, a once-every-four-years event that reduces new supply of the token and which some analysts view as a bullish precursor. So far the supply growth curbs have failed to provide much of a discernible prop for prices.
“The recent downtrend can be attributed to increased profit-taking by investors who entered the market during the downturns of 2022 and 2023, as well as ETF investors who witnessed significant price appreciation on their shares after entering the market in the early weeks of 2024,” Matteo Greco, research analyst at Fineqia International, wrote in a note.
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