3 Reasons Why Bitcoin (BTC) Price Dropped Today

After approaching the $68,000 level on July 22, Bitcoin (BTC) has faced a 6% correction over the past three days, wiping out the gains made in the previous week. From a bullish perspective, there are positive signs as the $64,000 support remains firm.

Buyers are defending Bitcoin’s market cap at $1.25 trillion, slightly higher than the British pound ($1.15 trillion). Still, Bitcoin bears are supported by macroeconomic data, at least in the short term.

Bitcoin price drop coincides with U.S. stock market decline

Bitcoin’s price decline coincides with the Nasdaq index futures movement, which experienced a 4.9% correction between July 23 and July 24. Traders are now questioning whether the impetus behind the stock market decline, particularly in tech names, justifies its correlation with the cryptocurrency market. If investors’ concerns are primarily driven by recession fears, Bitcoin’s long-term appeal could provide a buying opportunity.

Semiconductor stocks and AI-related stocks led the way, with Crowdstrike (CRWD) down 25.5% in one week, followed by Super Micro Computer (SMCI) down 12.6%, GlobalFoundries (GFS) down 12.2%, NXP Semiconductors (NXPI) down 10.8%, and Intel Corp (INTC) down 10.5%. The market seems particularly concerned about the outlook for AI demand, as investments in the sector have yet to yield returns.

Steven Zhu of UBS Global Research warned investors that the benefits of Google Cloud Platform’s AI investments are “difficult to discern” and won’t show up in the earnings line until mid-2025. In the second quarter, Google’s parent company reported spending $2.2 billion to build AI models. As a result, Zhu questions whether the company’s return on investment will be compromised as it will need to spend more capital over the next two years, as reported by Yahoo Finance.

Strong macroeconomic data and court case against Bitfinex

Recent macroeconomic data also contributed to investor sentiment. The U.S. economy grew at an annual rate of 2.8% in the second quarter, beating market consensus of 1.9%. In addition, ongoing unemployment claims, which measure the number of people receiving benefits one week after they are issued in the U.S., fell on a seasonally adjusted basis. This measure is typically used as a proxy for employment, which is a more forward-looking indicator.

Recent economic indicators show that the Federal Reserve’s strategy of suppressing inflation without triggering a recession is working. The central bank has kept its overnight rate in the current range of 5.25%-5.50% since 2023, but analysts expect two to three cuts by the end of 2024.

This data is somewhat negative for Bitcoin. Some of Bitcoin’s appeal is that it is a hedge against inflation, the declining value of the US dollar, and investor confidence in US Treasury securities. In other words, a strong economy makes alternative assets less attractive, regardless of expectations about corporate earnings in the stock market.

Related: Cryptocurrencies have greater potential than stocks, real estate – Kraken Survey

Bitcoin investors are also concerned about the civil lawsuit against Bitfinex exchange and Tether company. The U.S. District Court for the Southern District of New York has allowed a class action lawsuit to proceed to discovery regarding a scheme to manipulate the market price of certain cryptocurrencies. The court released a redacted document containing the latest update on July 24.

It is worth noting that this is a civil case and the claims presented have not yet been proven in court. Essentially, Bitfinex and Tether may ultimately have to pay fines and adjust some procedures, but this process is likely to take years to fully resolve. Therefore, even if the outcome is negative, there is nothing in this case that would cause imminent price pressure on Bitcoin.

Bitcoin’s recent underperformance is likely due to investor concerns about a bubble fueled by strong macroeconomic data and artificial intelligence hype.