Three Potential Explanations for Bitcoin's Decline Below $64,000
Bitcoin has been in negative territory for several days, falling below $64,000 at midday today, a full $10,000 below its record high of $73,800 set on 14 March. Why is bitcoin pulling back so sharply and is the bull market over?
From a crypto market and macroeconomic perspective, there are three main reasons.
1. Historically, Bitcoin Pulls Back Before Halving its Value
Historically, Bitcoin has entered the pre-halving 'danger zone'. Previous halving experiences have shown that Bitcoin typically begins to pull back around 14-28 days before halving.
In the last two periods, Bitcoin pulled back a maximum of 20% before the halving in 2020 and a maximum of 40% before the halving in 2016. Currently, with approximately 34 days remaining before Bitcoin's fifth halving, it appears to be ahead of schedule.
This may be because Bitcoin typically rises before the halving. However, during this cycle, Bitcoin reached new all-time highs. As a result, some investors are choosing to sell to secure profits, leading to an early pullback.
The Bitcoin short divergence was valid and remains so.
2. Gray Bitcoin ETF Sharply Outflows, Exacerbating BTC's Decline
The Bitcoin Spot ETF has been approved, injecting a significant amount of new capital into the crypto market. It is seen as the main catalyst for Bitcoin's move into a bull market. However, the catalyst effect of the Bitcoin Spot ETF is waning as the inflow of capital slows down naturally.
On Monday, the Grayscale Bitcoin Trust (GBTC) experienced $643 million in outflows, the most since it switched to an ETF on January 11th. Previously, the nine new bitcoin ETFs that entered the market simultaneously received strong demand, enough to compensate for the significant outflows from GBTC. However, inflows into the products of industry leaders such as Fidelity Investments and BlackRock are also decreasing.
On March 18, Bitcoin spot ETFs experienced net outflows of $154.3 million, while Grayscale GBTC saw net outflows of $642.5 million. This marks the highest single-day outflow since Jan. 11, according to Farside Investors monitoring. However, the nine new Bitcoin ETFs listed at the same time received strong demand to make up for the GBTC outflows. Nevertheless, inflows into giant products such as Fidelity Investments and BlackRock are also decreasing. BlackRock IBIT saw a net inflow of $451.5 million, and Fidelity FBTC saw a net inflow of $5.9 million yesterday, the lowest inflow in a single day on record.
3. Fed Rate Cuts Expected to Weaken, Japan's First Rate Hike in 17 Years
On Monday, contracts predicting the Fed's decision showed less than a 50% chance of a rate cut in June. These contracts eventually closed lower, reflecting market expectations that a rate cut at the June meeting is only slightly more likely than not. Fed officials may revise their forecasts at the end of the two-day meeting on Wednesday, hinting at a smaller rate cut due to better-than-expected inflation and economic growth data.
However, on March 19, the Bank of Japan increased its benchmark interest rate from -0.1% to 0-0.1%, marking the first rate hike since 2007 and officially ending an eight-year era of negative interest rates. This move terminated the world's last negative interest rate and yield curve control mechanism, concluding the most aggressive monetary easing program in modern history.
It is possible that all three of these factors contributed to the sharp pullback in the crypto market. Is this pullback over? Not so fast, I'm afraid.
