Bitcoin prices plummeted between April 30 and May 1, with the price falling 11.5% to $56,522. The recession triggered the liquidation of $172 million in leveraged long positions, which is significantly low considering that Bitcoin (BTC) futures open interest stood at $28.9 billion before the price crash. As a result, it would be simplistic to assume that the bull was startled.
Uncertainty will likely diminish after the Fed minutes are released.
Some analysts believe investors will maintain a holding pattern until US Federal Reserve Chairman Jerome Powell concludes his speech after the two-day Monetary Committee meeting on May 1. At 5.25%, there is considerable skepticism about the U.S. Treasury’s ability to finance the government budget.
On April 30, the U.S. Treasury’s two-year Treasury yield rose to its highest level in five months, reaching 5.06%. This is as investors sought higher returns to offset increased risks following the announcement of a $1.07 trillion deficit in the first half of 2024. After the Federal Reserve raised interest rates throughout 2023, interest costs on deficits increased 23% in the first half of 2024 and are expected to continue to rise as long as interest rates remain elevated.
Bitcoin is not the only one facing a downward trend. As macroeconomic conditions worsen, investors have become more risk averse. The Russell 2000 index, which tracks small and mid-cap U.S. public companies, fell 8.2% over the past 30 days, wiping out gains from the past two months. Likewise, the price of WTI crude oil has fallen 8.3% since April 5, when it reached a five-month high of $87.91.
Key signs that Bitcoin’s price correction may have reached a bottom include Amazon, Microsoft, Google, Netflix, TSMC, Samsung, Coca-Cola, Morgan Stanley, Citigroup, HSBC, and Barclays. A temporary recovery in the stock market may shift investors’ focus away from Bitcoin and other risk assets, but traders may look for alternatives if the Federal Reserve decides to keep interest rates higher for an extended period of time.
Bitcoin Miners Surrender FUD and China’s Strong Crypto Inflow
Bitcoin miners have been under significant strain since the April 20 halving, which reduced rewards by 50% to 3.125 BTC per block. Kiyoung Ki, CEO of CryptoQuant, noted that there are no signs that miners’ estimates of exchange outflows will surrender “for the time being.” Youngju Joo added that if the Bitcoin price decline “continues for several weeks, large miners are at risk of having to liquidate Bitcoin.”
Therefore, another sign that Bitcoin’s downturn is nearing its end is the steadfast unwillingness of miners to sell despite a 57% drop in the hash rate index, as reported by Luxor Technology. This indicator evaluates the expected daily return of 1 terahash of hash power, taking into account network difficulty, Bitcoin price, and transaction fees.
To understand the broader sentiment in the cryptocurrency market, it may be helpful to examine demand for stablecoins in China, particularly USD Coin (USDC). The premium of USDC trading against the official US Dollar exchange rate provides insight into the activities of retail investors, indicating whether they are moving into the cryptocurrency markets.
Related: Why Bitcoin price fell 11% after halving
On May 1, the Chinese USDC premium rose to 2.7%, indicating strong demand to convert Chinese Yuan to USDC. This continued interest signals positive sentiment towards cryptocurrencies in China and supports the bullish outlook for Bitcoin, whose price has fallen 20% in the past three weeks.
However, despite the possibility of improvement in market sentiment following the Federal Reserve’s comments and the perception that concerns about miners’ capitulation have so far been unfounded, the situation in the US market is showing a different trend. Specifically, over the past five trading days, net outflow from U.S.-listed spot exchange-traded funds reached $635 million.
These findings suggest that investment flows are important in determining Bitcoin’s price movements and that there is no certainty that the $56,500 support level will be maintained.
This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.