Bitcoin's 4.5% Drop Coincides with Market Corrections, Nvidia Stock Outperforms
Summary:
On May 23, Bitcoin saw a 4.5% drop, leading to a $1.3 billion decline in its futures open interest. The downturn coincided with corrections in the S&P 500 futures and WTI oil prices. It's possible that certain factors such as the predicted approval of Ether's spot ETF in the US and macroeconomic data spurred Bitcoin's sharp downfall. The U.S. housing market slump also initiated investor unease, negatively affecting market sentiment. Despite this, Nvidia's (NVDA) stock rose by 10% following robust earnings growth, reflecting the fact that individual company performances can still influence market risk appetite for risk-on assets like Bitcoin.
On May 23, Bitcoin (BTC) witnessed a notable drop of 4.5%, pulling back to a support level of $66,750. This downward shift led to a $1.3 billion fall in Bitcoin’s open futures interest, despite only $40 million of long leveraged positions being liquidated over the last 12 hours as per data from Coinglass. The hefty drop coincided with a 1.5% dip in the S&P 500 futures shortly after reaching an all-time high of 5,368 points. WTI oil prices also took a 2.3% hit within 4 hours on the same day, sinking to its lowest in nearly three months, $76.30.
Various factors such as prospective approval of Ether's spot exchange-traded fund (ETF) in the US and macroeconomic data could have contributed to this abrupt downturn in Bitcoin's worth. Worry is abundant among investors with the downturn in the U.S. housing market, signified by a 7.7% annual decrease in new home sales in April, indicating an oversupply that could take more than nine months to deplete. This situation bears significant influence on the finance sector as the likelihood of loan defaults at regional banks heightens, affecting the broader market sentiment.
In another development, the U.S. S&P composite PMI jumped to a two-year high in May at 54.4 from 51.3 in April. Although this indicates economic progress, it paradoxically hinders risk-on investors by decreasing chances of monetary easing, a term for when the U.S. Federal Reserve reduces interest rates to boost the economy. Essentially, elevated rates usually make investments with fixed income more lucrative, which works against Bitcoin.
According to Melissa Brown, a managing director at SimCorp, who spoke to CNBC, the existing state of affairs leaves investors on pins and needles, with political uncertainties in the U.S. and UK, combined with conflicting macroeconomic data and ongoing wars. Brown suggests that due to current predicaments, traders lean toward not investing additional money into the market.
Legislation modifications introduce further intricacies. Even though the passing of the FIT21 Act by the U.S. Lower House on May 22 is considered a victory for the sector, it brings up a question mark regarding the SEC’s control over cryptocurrencies that cannot fulfill the "sufficient decentralization" parameter. This potential extra regulation could repel investors distrustful of more government interference.
The Act still awaits Senate voting and likely subsequent committee delegation for rounds of review and hearings. Therefore, parts of the FIT21 Act could be subject to alteration. Even if the suggestion remains predominantly pro-crypto, it’s unlikely to be put into effect in the near future.
Nvidia (NVDA), despite wider tech market trends, saw its stock soar 10% after reporting an impressive quarterly earnings growth of 21%. Nvidia CEO Jensen Huang dismissed worries that the company would see diminished demand as it transitioned between its current and next generation of AI chips. This instance shows that the performance of individual companies can still influence market risk appetite for risk-on assets, including Bitcoin.
The close correlation between Bitcoin's price shifts and the S&P 500 futures movements emphasizes the increased synchronicity between the cryptocurrency and broader financial markets. However, regulatory uncertainties continue to loom large over the crypto market, with considerable legal challenges faced by major industry entities such as Coinbase, Binance, and Consensys, as well as scrutiny over privacy-focused wallets and services.
Disclaimer: This article doesn't contain investment advice or recommendations. Investments and trading carry risks, and potential investors are urged to carry out their own due diligence before making any decision.
Published At
5/23/2024 10:57:07 PM
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