Bitcoin Price Continues to Drop Below $60,000 – Here’s Why

Bitcoin (BTC) has struggled to hold above $60,000 for a whole week, with the most recent rejection occurring on August 27. A two-day correction of 9.9% then sent Bitcoin to a low of $57,918 on August 28, prompting the liquidation of $143 million in leveraged BTC long positions on derivatives exchanges. Now, traders are questioning why Bitcoin continues to struggle above $60,000.

Spot Bitcoin ETF outflows are a lagging indicator of Bitcoin demand.

Some analysts have attributed the recent weakness to disappointing outflows from Bitcoin exchange-traded funds (ETFs). However, such data is usually reflective, so traders often turn bearish when news events change their perceptions. More importantly, Bitcoin’s most recent correction on August 29 coincided with the movement of the S&P 500 index.

One of the key developments leading up to this event was the sharp rise in the yield on the 2-year US Treasury note, which had previously fallen to 3.85%, the lowest level in three weeks. However, on August 29, there was a sharp reversal, with the yield falling to 3.90%. This was a signal that investors were selling these instruments in search of higher yields.

According to a Zacks Research note, this risk-off sentiment was driven by uncertainty surrounding Nvidia’s earnings report, due after the market closed on August 29, and the U.S. personal consumption expenditures (PCE) index for July, due out on August 30. At the time, investors were concerned that higher inflation numbers could delay expected rate cuts by the central bank.

Despite beating estimates, Nvidia shares reacted negatively, falling to a two-week low in after-hours trading. As for inflation indicators, there were no surprises, with PCE rising 2.6% year-over-year, boosting investor confidence that the Federal Reserve will soon ease some of its restrictive monetary policy aimed at curbing inflation.

So Bitcoin’s plunge from the $61,000 level on August 29 could be attributed to concerns among traditional financial investors, particularly its dependence on the growth of technology companies driven by demand for artificial intelligence, and the market pricing in a 100% chance of a rate cut in September.

In essence, even slightly less favorable economic data can cause sharp movements in fixed income markets, which in turn can reverberate through stocks, influencing Bitcoin prices, creating a cascading effect. However, this alone does not fully explain why Bitcoin failed to hold its previous $60,000 support throughout August.

Bitcoin is already among the top 10 tradable assets worldwide, but it could go even higher.

Rather than focusing on Bitcoin’s nominal price, consider how the cryptocurrency’s $1.2 trillion market cap compares to the broader financial markets and currencies. That level already puts Bitcoin among the world’s top 10 financial instruments, ahead of Warren Buffett’s Berkshire Hathaway conglomerate and TSMC, the world’s largest chipmaker.

To put this into more concrete terms, Berkshire Hathaway’s annual profit of $121 billion means that the company could buy the entire market cap of Bitcoin with 10 years’ worth of net income. In fact, the company has $277 billion in cash and cash equivalents, which is enough to acquire 4.61 million BTC for $60,000, or 23% of all coins currently in circulation.

relevant: It’s time to abandon the Bitcoin power law theory.

In terms of base currency (real money and bank reserves held by commercial banks at their respective central banks), Bitcoin’s $1.2 trillion valuation is equivalent to the British pound. According to this analysis, Bitcoin’s only competitors are the US dollar, the euro, the Chinese yuan, and the Japanese yen.

None of these fundamental indicators appear to be enough to keep the Bitcoin price below $60,000. However, this suggests that traders are questioning the current adoption rate, including the size of the Bitcoin ETF market and the use of the Bitcoin network as a settlement layer. While investors currently appear to prioritize technological growth and the relative stability of the world’s largest economy, these sentiments could easily change over time.