Bitcoin Dips Below $39,000 Amid Market Shift and Regulatory Pressure
Summary:
Bitcoin's value dropped below $39,000 for the first time in over 50 days, aligning with the SEC's approval of the Bitcoin spot ETF. The decline prompted $385 million worth of long Bitcoin futures contracts to be liquidated. From an economic perspective, the DXY index indicated a comeback for the U.S. dollar despite fiscal issues. With the anticipated successful inflation management by the U.S. Federal Reserve, recession seems unlikely. Meanwhile, Bitcoin faces regulatory pressure and problems such as ETF outflows and the impending unlocking of Bitcoin from the defunct Mt. Gox exchange, influencing its price negatively.
For the first time in over 50 days, Bitcoin (BTC) dipped below the $39,000 mark on January 23. This decline began on January 11, aligning with the green light given by the U.S. Securities and Exchange Commission (SEC) to the Bitcoin spot ETF, prompting a 17.5% drop in the twelve days leading up to January 23 resulting in $385 million worth of Bitcoin futures long (buy) contracts being liquidated. In contrasting choices, the U.S. economy is currently favoring stocks over Bitcoin.
From a greater economic perspective, 2024 saw the DXY index, which establishes the power of the U.S. currency compared to a collection of international currencies, making a comeback. This index has continued to rise even after hitting its lowest in five months, 100.80, on December 28, 2023, indicating that investors have faith in the U.S. dollar despite fiscal predicaments.
As people begin to anticipate successful inflation management by the U.S. Federal Reserve (Fed), without any economic downturn, the one-year expectation for the U.S. dropped to 2.43% in January 2024, after being 3.09% in December 2023. Concurrently, the likelihood of a recession seems to have diminished, with expectations from the Conference Board "Economic Forecast" anticipating U.S. GDP to grow by 1.7% in the first quarter and 2.4% in the second quarter.
Based on CME Group's FedWatch Tool, there's been a drop in the anticipated chances of an interest rate cut in March from 81% earlier to 47%. Investors also expect only 5 rate cuts in 2024, unlike the previously forecasted six. Further, the New York and Atlanta Fed Presidents, John Williams and Raphael Bostic, have indicated that there's no rush to slash interest rates, even if further hikes aren't being discussed, as CNBC reported.
There is an argument that Bitcoin should also benefit from the factors that have pushed the S&P 500 index towards an all-time high record. However, the influencers for stocks are quite different from commodities, including cryptocurrencies. For instance, the top 500 U.S. listed companies collectively have $2.6 trillion in cash reserves. Along with some generating dividends, these companies act as financial safety nets during minor recessions.
Bitcoin's price has not only fluctuated with the movement of spot ETF outflows, but also, regulatory pressure has escalated. Bitcoin is also facing concerns due to the net aggregate outflows from the spot exchange-traded fund (ETF) since January 17. Additionally, there's unease over the impending unlocking of approximately 142,000 BTC from the liquidation of the now-defunct Mt. Gox exchange. Initial payments began in December 2023 with plans to fully reimburse creditors by October 2024. Lastly, there's an undercurrent of negative regulatory pressure, especially from the U.S., which despite not directly affecting Bitcoin, has potential repercussions on stablecoins and exchanges.
On January 21, U.S. Senator Elizabeth Warren indicated in a post that "rogue nations are using crypto to dodge sanctions and undermine our national security." While the cryptocurrency community was quick to counter that "fiat is the preferred currency for financial crimes," it doesn't negate possible negative results from regulatory measures and the corresponding short-term price implications. Please conduct your own research before making investment or trading decisions as they involve risks.
Published At
1/23/2024 11:45:00 PM
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