Bitcoin faces worst month in two years as ETF demand falls

Digital asset slumped by about 16% in April as the prospect of higher-for-longer interest rates is weighing on the cryptocurrency market

A Bitcoin ATM at the Clark Street subway station in Brooklyn, New York. The digital asset was trading at $60,207 as of 9.10am on Wednesday in the UAE. AFP
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Bitcoin recorded its worst monthly drop in April since the collapse of Sam Bankman-Fried’s FTX empire in November 2022, as the prospect of higher-for-longer interest rates weighs on the cryptocurrency market.

The largest digital asset slumped by about 16 per cent last month as excitement about US spot Bitcoin exchange-traded funds flatlined after earlier lifting the token to a record high of about $74,000 in March.

The cryptocurrency was trading at $60,207 at 9.10am UAE time on Tuesday. Smaller tokens such as Ether and the meme-crowd favourite Dogecoin are also nursing 24-hour losses.

Tuesday’s debut of Bitcoin and Ether ETFs in Hong Kong also failed to provide a tailwind.

Trading volume for the six vehicles totalled $12.7 million on the first day, sizeable locally but smaller than the $4.6 billion achieved by the US products when they went live in January, according to Bloomberg Intelligence.

The debuts mark the first launch of spot cryptocurrency ETFs in Asia.

Delayed cuts

A case is building for the US Federal Reserve to signal a delay in rate cuts after officials conclude a policy meeting on Wednesday.

For example, the latest US data included a climb in labour costs, adding to evidence of inflationary pressures.

Real yields – seen as the true cost of money for borrowers – are jumping, a tough backdrop for speculative assets such as digital tokens.

Higher Treasury yields and real rates have been “toxic for gold, Bitcoin and US equity”, Chris Weston, head of research at Pepperstone Group, wrote in a note.

ETF outflows

A net $182 million was pulled from the group of about a dozen US spot Bitcoin ETFs last month through April 29, according to data compiled by Bloomberg. The funds had a net inflow of $4.6 billion 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, told Bloomberg Television on Tuesday.

That “led to Bitcoin moving up very quickly, much further than what has been anticipated”.

The Bitcoin network underwent a “halving” last month, a four-yearly event that reduces new supply of the token and which some analysts view as a bullish precursor.

So far, the supply curbs have failed to provide much of a discernible prop for prices.

Previous Bitcoin halvings in 2012, 2016 and 2020 were followed by massive rallies in its price. For instance, a year after the May 2020 Bitcoin halving, the cryptocurrency’s price was up by more than 545 per cent.

“This current cycle stands out from all the other previous cycles as the Bitcoin price has already achieved a new all-time high – even before the halving,” Bitfinex analysts said in an April 8 report.

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.

Binance founder gets four months in prison

In other news from the industry, Binance founder and former chief executive Changpeng Zhao was ordered to spend four months in prison for looking the other way as cyber criminals and terrorist groups freely traded on the world’s largest cryptocurrency exchange.

The sentence was far below the three years requested by prosecutors. A date for Mr Zhao to turn himself in to prison authorities has not been decided.

Mr Zhao, 47, had pleaded guilty in November to one count of failing to maintain an anti-money laundering programme.

Between 2018 and 2022, Binance processed at least 1.1 million transactions worth about $898 million that breached US sanctions, according to the government’s memo.

Binance agreed to pay $4.3 billion to settle related allegations from the US government.

“I failed here,” Mr Zhao told the court in Seattle on Tuesday. “I deeply regret my failure and I am sorry.”

“I left my family to come to the US to take responsibility for my actions. That’s because responsibility is a core value for me, and I live by that.”

But the US District Judge Richard Jones said he was troubled by Mr Zhao's decision to ignore US banking requirements.

“Better to ask for forgiveness than permission,” is what Mr Zhao told his employees about the company's approach to US law, prosecutors said.

Mr Zhao is the first person sentenced to prison for such breaches of the Bank Secrecy Act, which requires US financial institutions to know who their customers are, to monitor transactions and to file reports of suspicious activity.

“This wasn’t a mistake,” Justice Department lawyer Kevin Mosley told Mr Jones. “When Mr Zhao violated the BSA, he was well aware of the requirements.”

In a letter to the court, Mr Zhao wrote that there was “no excuse for my failure to establish the necessary compliance controls at Binance”.

“I wish I could change that part of Binance’s story,” he said. “But under my direction, Binance has now implemented the most stringent anti-money laundering controls of any non-US exchange, and those controls have been in place since 2022.”

In a post on social media platform X after the sentencing, Mr Zhao said: “I will do my time, conclude this phase and focus on the next chapter of my life [education].”

I failed here. I deeply regret my failure and I am sorry
Changpeng Zhao, founder and former chief executive of Binance

He added that he “will remain a passive investor (and holder) in crypto”.

Despite Mr Zhao’s criminal case, his wealth swelled by $25 billion as the cryptocurrency industry recovered last year.

He is currently ranked as the 42nd richest person in the world, according to the Bloomberg Billionaires Index.

“The Securities and Exchange Commission's new calls for a hefty prison sentence for CZ is bad juju for relations between the digital asset sector and regulators,” said Lucas Kiely, chief investment officer of digital wealth platform Yield App.

The regulatory clarity and enforcement actions won by cryptocurrencies, plus the approval of long-awaited Bitcoin ETFs over in the past 12 months, are positive moves that have the potential to benefit myriad investors, he said.

Continued regulation by the US authorities is going to result in it cutting itself out of this fast-growing industry as other jurisdictions, notably Hong Kong, go in the opposite direction, Mr Kiely added.

With inputs from agencies

Updated: May 01, 2024, 7:19 AM