Bitcoin posted one of its steepest drops on Monday, driven by weak demand for exchange-traded funds holding the cryptocurrency and uncertainty over monetary policy.
Developments in the US, including the presidential debate and inflation figures, could further affect Bitcoin price movements this week, according to experts.
The largest digital asset shed as much as 8.1 per cent to $58,528 on Monday, the biggest intraday decline since April 13, before settling at $59,191.39.
The token stabilised on Tuesday, rising roughly 3 per cent to retake $61,000. It was trading at $60,964.95 at 9.50am UAE time.
The leading token by market value is down 12 per cent so far this month. It remains sharply higher for 2024, however, after ending last year below $43,000. Bitcoin hit a record of $73,798 in March.
Adding to fears of increased selling pressure, the rehabilitation trustee of Mt. Gox – the Japanese crypto exchange that was hacked more than a decade ago – announced that it would start repayments of Bitcoin and Bitcoin Cash in July, which means more Bitcoins may hit the market soon.
“The world’s largest cryptocurrency is seeing cooling demand for Bitcoin ETFs and uncertainty over US interest rates. Ongoing developments concerning the failed Mt. Gox exchange rubbed salt into the wound, with a negative mood enveloping the crypto space,” said Lukman Otunuga, senior market analyst at forex trading broker FXTM.
The Biden vs Trump presidential debate on Thursday and the Fed’s preferred inflation gauge on Friday could rock Bitcoin. Any mention of crypto policy during the debate or an inflation report that shifts Fed cut bets could inject Bitcoin with more volatility, Mr Otunuga added.
It has been a tumultuous few years for the global digital asset sector, which entered a “crypto winter” in 2022 after the collapse of a number of large platforms including Celsius, Three Arrows Capital and Sam Bankman-Fried's FTX.
The prospect of higher-for-longer interest rates is also weighing on the cryptocurrency market.
The anticipated interest rate cuts by the Federal Reserve this year could inject more liquidity into the market. The monetary easing is likely to benefit high-risk assets like Bitcoin, similar to post-pandemic economic stimulus measures.
Excitement about US spot Bitcoin ETFs flatlined after earlier lifting the token to a record high of about $74,000 in March.
The Securities and Exchange Commission has approved 11 spot Bitcoin ETFs as of January, including those from major players like BlackRock, Ark Invest and Fidelity. These ETFs were expected to significantly increase demand for Bitcoin by making it more accessible to institutional and retail investors alike.
The Bitcoin network underwent a halving in April, a four-yearly event that reduces new supply of the token and which some analysts view as a bullish precursor.
However, the supply curbs failed to provide much of a discernible prop for prices.
This latest sell-off is attributed to the financial strain on Bitcoin miners, who have offloaded more than $2 billion worth of Bitcoin this month to offset dwindling revenues, according to Mohamed Hashad, chief market strategist, Noor Capital.
“The root of the miners’ woes lies in the Bitcoin halving event in April, which slashed their rewards by half,” Mr Hashad said.
“This, coupled 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. Many smaller operations have been forced to shut down, intensifying the selling pressure on Bitcoin.”
More than $210 million worth of bullish bets in crypto were liquidated in the past 12 hours, according to data compiled by tracker Coinglass.
Bitcoin investment products saw around $600 million in outflows for a second consecutive week, the most over a two-week period since the US approved ETFs to hold the largest cryptocurrency in January.
“The cryptocurrency’s decline has negatively affected the ETF market. While Bitcoin ETFs had been instrumental in driving Bitcoin’s price to new highs earlier this year, the recent sell-off has triggered an outflow of around $200 million from these ETFs,” Mr Hashad said.
“Despite the current gloomy outlook, some experts believe that the selling pressure could ease once the mining industry stabilises. However, for now, the downward trend persists, dragging both Bitcoin and its associated ETFs into uncertain territory.”
Overall, digital asset products were hit with $584 million in outflows in the week ended June 21, data from CoinShares International shows.
Bitcoin products accounted for the majority, with $630 million in outflows coming in the wake of another $600 million the prior week.
