Bitcoin experienced a significant price drop between April 30 and May 1, with its value decreasing by 11.5% to $56,522. This decline led to $172 million in liquidations of leveraged long positions, which is relatively low considering the high open interest in Bitcoin futures before the crash. Therefore, it would be incorrect to assume that bullish investors were caught off guard.
To add to the uncertainty, investors are currently in a holding pattern awaiting the conclusion of Jerome Powell’s speech following the two-day monetary council meeting on May 1. While it is widely expected that the Federal Reserve will maintain interest rates at 5.25%, there is skepticism regarding the U.S. Treasury Department’s ability to finance the government’s budget.
On April 30, the yield on the U.S. Treasury two-year note reached its highest level in five months, reaching 5.06%. This increase was in response to investors seeking higher returns to offset the increased risk following the announcement of a $1.07 trillion deficit for the first half of 2024. Since the Federal Reserve’s rate hikes in 2023, interest expenses on the deficit have risen by 23% in the first half of 2024 and are expected to continue rising as long as rates remain high.
Bitcoin is not the only asset facing declines; worsening macroeconomic conditions have made investors more cautious. The Russell 2000 Index, which tracks mid- and small-cap U.S.-listed companies, has fallen by 8.2% in the last 30 days, erasing gains from the previous two months. Similarly, WTI oil prices have dropped 8.3% since April 5, when they reached a five-month peak of $87.91.
However, there are indications that Bitcoin’s price correction may be approaching a bottom, particularly when looking at the traditional markets. Strong first-quarter corporate earnings reports from major companies like Amazon, Microsoft, Google, Netflix, TSMC, Samsung, Coca-Cola, Morgan Stanley, Citigroup, HSBC, and Barclays have temporarily shifted investor focus away from Bitcoin and other high-risk assets. Traders may seek alternative investments if the Federal Reserve decides to maintain higher rates for an extended period.
Bitcoin miners are also facing challenges following the halving on April 20, which reduced their rewards by 50%. Estimates of miners’ outflows to exchanges do not show signs of capitulation for now, according to Ki Young Ju, CEO of CryptoQuant. However, if the Bitcoin price continues to decline for an extended period, large miners may be forced to sell a significant amount of Bitcoin.
Another sign that Bitcoin’s downturn may be nearing its end is the resilience of miners. Despite a 57% drop in the Hashrate Index, miners remain reluctant to sell, as reported by Luxor Technology. This metric takes into account network difficulty, Bitcoin’s price, and transaction fees to assess the daily expected return of hashing power.
To gain a broader understanding of market sentiment in the cryptocurrency industry, it is worth examining the demand for stablecoins in China, particularly USD Coin (USDC). The premium on USDC transactions over the official U.S. dollar rate can provide insights into retail investors’ activities and whether they are entering or exiting the cryptocurrency markets.
On May 1, the premium for USDC in China increased to 2.7%, indicating a strong demand for converting Chinese yuan into USDC. This sustained interest suggests a positive sentiment toward cryptocurrencies in China, which bodes well for Bitcoin’s outlook despite its recent 20% price decline over three weeks.
However, despite potential improvements in market sentiment following the Federal Reserve’s notes and the realization that fears of miner capitulation are unfounded so far, the situation in U.S. markets tells a different story. Net outflows from U.S.-listed spot exchange-traded funds amounted to $635 million in the past five trading days, suggesting that investment flows play a crucial role in determining Bitcoin’s price movements, with no guarantee that the $56,500 support level will hold.
It is important to note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making any decisions.