Bitcoin’s value declines as Federal Reserve rate-cut expectations wane and demand for exchange-traded funds slows

(Bloomberg) — Bitcoin prices dropped due to reduced interest in U.S. exchange-traded funds and fading expectations of the Federal Reserve easing its monetary policy.

The digital currency fell by up to 5.3% but later recovered slightly to trade at $66,920 as of 7:15 a.m. Tuesday in London. Other digital tokens like Pepe and dogwifhat, which were popular among meme enthusiasts, also saw declines, leading to the biggest two-day drop in smaller digital assets in two weeks.

This year’s impressive rally in the cryptocurrency market is losing momentum as investors scale back their bets on Fed interest rate cuts amid ongoing price pressures in the U.S. This has resulted in higher Treasury yields and a stronger dollar, creating a challenging environment for speculative assets like digital currencies.

According to Stefan von Haenisch, head of trading at OSL SG Pte, the shifting views on Fed policy are affecting the entire crypto sector, with a sell-off seen at the start of the week, especially in segments that have outperformed Bitcoin recently, such as meme tokens.

Bitcoin has dropped about 10% from its peak of $73,798 in mid-March. Inflows into U.S. spot Bitcoin ETFs have slowed down, impacting the overall market. On Monday, investors withdrew a net amount of $86 million from these ETFs, which have accumulated around $12 billion since their launch on Jan. 11, as per Bloomberg data.

Richard Galvin, co-founder of DACM, described the crypto market as “weak” in response to the latest U.S. economic data showing unexpected growth in manufacturing and rising input costs. The expectation of Fed easing this year, measured by swap contracts, has decreased to around 65 basis points, below policymakers’ projections.

Looking ahead, the upcoming halving of new Bitcoin tokens, a cyclical event occurring every four years, could provide support for the cryptocurrency. However, some traders argue that further gains may be limited, considering Bitcoin’s significant price increase since the beginning of 2023.

©2024 Bloomberg L.P.

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