• Bitcoin has dropped 4% to $61,000, marking its second-worst weekly decline of 2024, driven by decreased demand for ETFs and uncertainty over Federal Reserve policies.
  • Contributing factors include Bitcoin miners selling off holdings, Germany’s $3 billion Bitcoin sale, and investor caution due to economic indicators.

Bitcoin, the world’s largest cryptocurrency, has experienced a sharp downturn, falling over 4% to the $61,000 level on Monday. This marks its lowest point in over a month and represents the second-worst weekly decline of 2024. The recent slump in Bitcoin prices can be attributed to several factors, including waning demand for Bitcoin exchange-traded funds (ETFs) and growing uncertainty surrounding monetary policy.

As of 11:44 a.m. in London, Bitcoin stood at $61,153, with losses mounting in the crypto market. The market value of Bitcoin currently sits at approximately $1.2 trillion, despite a slight uptick in open interest, which has increased by 0.59% to a valuation of $19.1 billion. The cryptocurrency market, in general, is experiencing a downturn, leading to confusion and fear among investors about their next steps.

Factors Driving the Downturn

Avinash Shekhar, Co-Founder & CEO of Pi42, identifies three major reasons behind the current downfall of Bitcoin. Firstly, Bitcoin miners are selling off their holdings to fund their mining activities. Secondly, Germany is selling $3 billion worth of Bitcoin. Lastly, the erstwhile crypto exchange Mt. Gox has announced Bitcoin cash repayments in July. These factors collectively exert downward pressure on Bitcoin’s price.

Market sentiment also plays a crucial role in Bitcoin’s recent performance. Investors are adopting a cautious approach, refraining from aggressive moves due to various factors tempering their risk appetite. The uncertainty over Federal Reserve interest rate policies significantly influences this cautious sentiment. Traders remain wary of potential interest rate hikes amid ongoing inflation concerns. The Federal Reserve’s forthcoming decisions, especially those influenced by economic indicators such as the PCE price index, are crucial for market sentiment.

Rajagopal Menon, VP of WazirX, explains that Bitcoin has struggled to maintain crucial support levels due to several bearish conditions. There has been a steep decrease in high-ticket transactions and ETF outflows exceeding inflows, further dampening market sentiment. The strengthening of the dollar index, with the US PMI reaching an optimistic value of 54.6, has led investors to favor the dollar over riskier assets like Bitcoin. Additionally, profit-taking from derivatives trades has further dampened investor confidence.

Another significant contributing factor to Bitcoin’s downturn is ETF outflows. A notable withdrawal of $545 million from U.S. Spot Bitcoin ETFs signals a change in investor sentiment towards digital assets. Institutional investors, wary of market volatility and regulatory uncertainties, are reallocating their positions in Bitcoin-related investment products.

As Bitcoin navigates through this challenging period, the cryptocurrency market watches closely for the Federal Reserve’s next moves and other economic indicators that may influence future performance. The coming weeks will be crucial in determining whether Bitcoin can rebound or continue its downward trajectory.