Bitcoin experienced a significant price crash from April 30 to May 1, resulting in an 11.5% decrease to $56,522. This decline led to $172 million in liquidations of leveraged long positions, which is relatively low considering the high open interest of Bitcoin futures, standing at $28.9 billion prior to the crash. Therefore, it would be oversimplified to assume that bullish investors were caught off guard.
There is a sense of uncertainty among investors leading up to Jerome Powell’s speech following the two-day monetary council meeting of the United States Federal Reserve on May 1. While it is widely expected that the Fed 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, hitting 5.06%. This increase was driven by investors seeking higher returns to offset the heightened risk after the announcement of a $1.07 trillion deficit for the first half of 2024. Since the Fed’s rate hikes in 2023, interest expenses on the deficit have risen by 23% in the first half of 2024 and are projected to continue rising as long as rates remain elevated.
The decline in Bitcoin’s price is not an isolated event, as worsening macroeconomic conditions have made investors more risk-averse. 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 decreased by 8.3% since April 5, when they reached a five-month peak of $87.91.
A positive sign that Bitcoin’s price correction may be approaching its bottom is the performance of traditional markets. Strong first-quarter earnings reports from major companies such as 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. However, if the Fed decides to maintain higher rates for an extended period, traders may seek alternative investments.
Bitcoin miners are facing significant challenges following the halving on April 20, which reduced their rewards by 50% to 3.125 BTC per block. Despite a 57% drop in the Hashrate Index, miners have shown resilience and are reluctant to sell their Bitcoin, as reported by Luxor Technology. This indicates that miner capitulation, a fear among investors, has not yet materialized.
To gain a broader understanding of market sentiment in the cryptocurrency industry, it is important to examine the demand for stablecoins in China, particularly USD Coin (USDC). The premium on USDC transactions over the official U.S. dollar rate provides insight into the activities of retail investors 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 despite its recent 20% price decline over three weeks.
However, despite potential improvements in market sentiment following the release of the Federal Reserve’s notes and the realization that fears of miner capitulation are unfounded thus far, the situation in U.S. markets presents a different trend. Net outflows from U.S.-listed spot exchange-traded funds amounted to $635 million in the past five trading days. These findings highlight the significance of investment flows in determining Bitcoin’s price movements, with no certainty that the $56,500 support level will hold.
It is important to note that this article does not provide investment advice or recommendations. Each investment and trading decision carries its own risks, and readers should conduct their own research before making any decisions.