The drop in Bitcoin price to $56K sparked a wider sell-off in the cryptocurrency market as traders decided to take profits. This decision came amid expectations of a hawkish stance from the Federal Reserve and potential delays in rate cuts.
Bitcoin’s price has officially entered a bear market, dropping over 20%. This decline resulted in investors losing another $210 billion as the crypto market cap fell from $2.34 trillion to $2.13 trillion. The primary reason for this crash is attributed to the hawkish stance of the U.S. Federal Reserve, which backed away from three interest rate cuts this year. Analysts anticipate Bitcoin’s price to rebound from the $50K-$52K range.
Bitcoin Enters Bear Market Amid Economic Concerns
Bitcoin’s price has officially entered a bear market, plummeting over 20% after experiencing three consecutive days of decline this week. Investors have been withdrawing funds from the crypto market in anticipation of a hawkish stance from the U.S. Federal Reserve, which is expected to retreat from three interest rate cuts this year.
Mounting Economic Concerns: Stagflation and persistent inflation concerns are escalating, with no signs of slowing inflation and sluggish economic growth. Recent data on Personal Consumption Expenditures (PCE) indicated ongoing inflationary pressures, while the first-quarter GDP growth of 1.6% signaled stagflation.
Crucial Fed Decision: Today’s Federal Reserve monetary policy decision, along with remarks from Chair Jerome Powell, holds immense importance for both the stock and crypto markets. Investors are bracing themselves for potential market crash jitters as they await guidance from the Fed.
BTC Price Plummets Amid Market Turbulence
Bitcoin’s price took a sharp nosedive, plummeting over 10% in a single day, driven by panic selling from retail investors. Institutional investors, concerned about rising risks, opted to steer clear of risk assets, adding to the selling pressure. Currently, Bitcoin is trading at $57,000, with its 24-hour low and high recorded at $56,555 and $62,121, respectively. Moreover, trading volume surged by 70% in the last 24 hours.
With a 22% decline from its all-time high of $73,803 in March, Bitcoin has technically entered a bear market. However, despite this setback, it remains up 35% year-to-date and has doubled in value compared to the same period last year. The surge in Bitcoin’s value since January is attributed to significant inflows of capital into spot Bitcoin exchange-traded funds (ETFs).
As demand from spot Bitcoin ETFs wanes and investors perceive a lack of catalysts for recovery, profit-taking ensued. This triggered a broader selloff across the crypto market, further intensifying the downward pressure on Bitcoin and other digital assets.
US Dollar Strengthens Amid Fed Policy Speculations
The US dollar index (DXY) surged to around 106.4 on Wednesday, nearing six-month highs as investors awaited crucial monetary policy decisions from the US Federal Reserve. Market expectations anticipate the Fed to maintain interest rates at their current levels, buoyed by robust US economic data and persistent inflation concerns. However, the focus remains on Fed Chair Jerome Powell’s insights into potential rate adjustments throughout the year.
Simultaneously, the US 10-year Treasury yield (US10Y) approached a six-month peak, climbing to 4.67%. The uptick gained momentum following data indicating stronger-than-anticipated US labor costs, signaling a need for the Fed to uphold higher interest rates for an extended duration.
Bitcoin’s price often moves inversely to the movements of the DXY and US 10-year Treasury yield. This correlation underscores the influence of macroeconomic factors on the cryptocurrency market.
Market Analysis and Investor Behavior: According to Fineqia research analyst Matteo Greco, the recent downtrend in Bitcoin’s price can be attributed to increased profit-taking by investors who entered the market during the downturns of 2022 and 2023. Additionally, ETF investors, witnessing substantial price appreciation since early 2024, have also contributed to the selling pressure.
Crypto Market Witnesses Significant Losses
The cryptocurrency market cap plunged from $2.34 trillion to $2.13 trillion, resulting in investors losing an additional $210 billion following a massive $250 billion liquidation over the past few days. According to Coinglass data, the selloff led to over $475 million in liquidations across the crypto market.
The liquidations included approximately $420 million in long positions and over $55 million in short positions. More than 145,000 traders faced liquidation, with the largest single liquidation order recorded on the OKX crypto exchange, where an individual exchanged ETH to USD valued at $6.07 million.
Analyst Predictions and Market Outlook: Analysts anticipate a significant Bitcoin price rally to initiate from below the $50,000 mark. However, analyst Michael van de Poppe suggests that whale accumulation might alter the rally’s starting level to around $54,000. The market’s final recovery is expected to commence after the expiry of May 31 options contracts.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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