Major Factors Impacting Bitcoin's Sudden Slip from $37,000
Summary:
Bitcoin's value recently surged past $37,000 only to drop towards $35,000, triggering the liquidation of long futures contracts worth $121 million. While the reasons aren't concrete, possible factors include the unexpected ease of US inflation data leading investors towards traditional assets, and Moody's rating agency downgrading the US credit outlook from stable to negative. China's retail sales data and looming US government shutdown threats also likely influenced this volatility. Meanwhile, the cryptocurrency market has drawn regulatory scrutiny amid the fraudulent BlackRock XRP trust filing. This volatility comes amidst anticipation of spot Bitcoin ETF approval decisions from the SEC. Bitcoin's momentum above $37,000 will be challenged by factors such as effective Federal Reserve strategies for a soft economic landing and global economic growth concerns.
In a dramatic shift, the value of Bitcoin (BTC) skyrocketed past $37,000 between November 10 and 12 before taking a sudden downturn towards $35,000 on November 13. This unpredictable change incited the liquidation of long futures contracts valued at $121 million. Despite Bitcoin's value finding stability around $35,800 on November 14, the cause of this abrupt drop remains uncertain.
A possible factor behind Bitcoin's sudden slip was the unexpected easing of inflation data in the United States on November 14. The U.S. Consumer Price Index (CPI) reported a 3.2% inflation hike in October 2022 compared to previous records, reducing yields on short-term U.S. Treasury notes. This prompted investors to lean towards traditional assets, possibly lowering the interest in Bitcoin as an alternative hedge.
Despite Moody's rating agency downgrading the U.S. credit outlook to negative from stable on November 11, it did not stimulate significant interest in Bitcoin and other alternative investment vehicles. On the contrary, conventional short-term investments with 5.25% fixed income were favoured.
Relevant economic data emerged from China in October revealing a surprising 7.6% surge in retail sales, the most rapid since May. Conversely, the development masks the consistent decline of 9.3% in the property sector investments over the first 10 months of 2022. Regretfully, China's efforts to stimulate its economy, including policy support and liquidity, have rendered limited results.
The current economic landscape in China, the world's second-largest economy, along with a looming U.S. government shutdown, certainly played a part in Bitcoin's volatility.
The U.S. House of Representatives approved a bill on November 14 to avert a potential fiscal crisis by maintaining the government's operational capacity throughout the holidays. Although this is a temporary solution, it sets the stage for potential disputes over spending in the coming year, with a proposal to reduce federal spending by 1% in 2024 pending agreement.
The cryptocurrency market also registered an unfavorable response to a deceptive BlackRock XRP trust filing on November 13. This news initially stimulated hopes for an XRP spot exchange-traded fund (ETF) in the U.S. However, the $9 trillion asset manager promptly discredited the announcement.
The incident, though unrelated to Bitcoin directly, has attracted unwanted attention from regulators at a time when several spot Bitcoin ETF applications are already under review by U.S. Securities and Exchange Commission (SEC). Regardless of the parties involved, the incident deemed positive for the crypto market as a whole.
Bloomberg ETF analyst James Seyffart, however, dampened expectations of a spot Bitcoin ETF approval before January, adding to existing market anxieties ahead of SEC decisions slated for November 17 and 21.
Bitcoin's dramatic nosedive after approaching the $37,000 mark cannot be pinned on a single event. Investors may have revised their positions given Bitcoin's substantial market cap of $725 billion. For context, conglomerate heavyweight Berkshire Hathaway has a valuation of $760 billion recording profits of $76.7 billion in the past year.
However, Bitcoin's tough monetary policy ensures scarcity, unlike significant corporations that can buy back their own shares with earnings, effectively decreasing the available supply.
To sum up, Bitcoin's struggle to maintain its headway above $37,000 was impacted by a number of factors including hints of an effective Federal Reserve strategy for a soft economic landing and unease over global economic growth. These prevailing issues continue to impede Bitcoin's value, particularly if the SEC delays decisions on spot Bitcoin ETFs, which align with widespread market expectations.
Published At
11/15/2023 1:21:00 PM
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