Bitcoin (BTC) Price Slump Hints Major Trouble Ahead for Global Markets

7Ary...USep

2 May 2024

Investors track Bitcoin price movements for insights into liquidity dynamics affecting other assets. Recent Fed signals of prolonged high rates have pressured BTC amid rising Treasury yields and dollar value.

STORY HIGHLIGHTS

Investors see the falling Bitcoin price as a cue for the global market fall coming ahead.
Unchanged interest rates by the Fed are likely to cotninue putting pressure on Bitcoin for more time.
Bitcoin ETF demand fizzles out as outflows surge past $560 million.

The sharp drop in Bitcoin (BTC) price this week has grabbed the attention of global investors, who usually see the directional moves in the digital asset as a precursor to what’s coming ahead for the global market. As of press time, BTC is trading 4.5% down at $57,453 with a market cap of $1.13 trillion.

Bitcoin Price Hints Trouble for Global Markets

On the weekly chart, the Bitcoin price has extended its losses in the double-digits, with investors expecting further downside all the way to $50,000. Bitcoin ended the month of April with a 16% price drop, its worst month since the FTX collapse in November 2022.
Some investors closely monitor Bitcoin movements to gauge shifts in liquidity dynamics that can impact other assets. The Bitcoin price experienced a decline in recent weeks amid signals from the Federal Reserve indicating that interest rates will remain elevated for an extended period. This stance has tightened financial conditions by driving up Treasury yields and the value of the dollar.
Courtesy: Bloomberg

In its latest decision, the FOMC opted to maintain US interest rates at their current range of 5.25% to 5.50%, a level unchanged since July 2023. Many in the crypto community were actually hoping for a rate cut from the US Fed on May 1st, which could have boosted equity market valuations and, consequently, cryptocurrencies.
However, Jerome Powell has indicated that the Fed intends to keep rates steady until inflation retreats to the 2% target level. In a note to investors, ByteTree Asset Management Chief Investment Officer Charlie Morris wrote:
“Bitcoin is our favorite canary. It is warning of trouble ahead in financial markets, but we can be confident it’ll bounce back at some point. The recent strength in the US dollar may signal market tightness ahead”.

Bitcoin ETF Demand Fizzles Out

While the launch of spot Bitcoin and Ether ETFs in Hong Kong caused some excitement, the mood in the US market has been largely bearish. On Wednesday, the US spot Bitcoin ETFs saw massive $560 million outflows with BlakcRock’s IBIT witnessing its first-ever outflow since inception.
The demand for the products diminished afterward, and the markets did not receive a boost from the launch of spot Bitcoin and Ether ETFs in Hong Kong this week. Discounts to the net asset value for certain US portfolios have expanded to unprecedented levels, highlighting the difficulties that can arise from Bitcoin’s volatility. Youwei Yang, chief economist and vice president of crypto miner BIT Mining Ltd. said:

“The next three to four months will be less bullish and more risk-oriented, with the market closely monitoring inflation, employment and economic data for any unexpected shocks or to gain confidence about potential rate cuts”.

U.S. Bitcoin ETF Outflows Surge Past $560 Million, More Pain Ahead?

Bitcoin ETFs faced substantial discounts on their underlying assets, with top ones like BlackRock's IBIT plunging nearly 1.8% in discounts.

STORY HIGHLIGHTS

Fidelity leaves behind Grayscale in terms of daily Bitcoin ETF outflows.
All nine of the spot Bitcoin ETFs record net outflows for the first time in a day, since launch.
Analysts predict that the BTC price fall all the way to $42,000 can't be denied.

The outflows from the U.S. spot Bitcoin ETFs have exacerbated further surging past $500 million on Wednesday, May 1. This massive selling pressure comes following the FOMC meeting when Fed Chair Jerome Powell announced to keep interest rates unchanged pushing the Bitcoin price another 5% down to $57,500.

Fidelity Bitcoin ETF Outflows Beat Grayscale’s

As per data from Farside investors, the net outflows from spot Bitcoin ETFs on Wednesday were $563.7 million. BlackRock Bitcoin ETF IBIT registered the first outflow since the inception of $37 million. On the other hand, Fidelity’s FBTC recorded the highest outflows at $191 million beating Grayscale’s GBTC at $167 million. For the very first time, all of the nine spot Bitcoin ETFs in the US registered net outflows in a single day.
On Wednesday, the price of Bitcoin ETFs witnessed one of the largest discounts on the underlying assets. Discounts for some of the top Bitcoin ETFs like BlackRock’s IBIT have surged as high as nearly 1.8%. Other Bitcoin ETFs also showed discounts in a similar range.
James Seyffart, an ETF analyst at Bloomberg Intelligence, remarked that it would have been more worrisome if the discounts were confined to a single fund. He added:

“That’s not a great look. It’s a little out of the ordinary in the fact that we’ve seen premiums and discounts in the range of -1% to +1% and this is bigger. But it’s not groundbreaking.”

Bitwise President Teddy Fusaro commented on the recent market volatility, noting that such dislocations are likely during periods of high market turbulence. He mentioned that these occurrences are typically brief and common, often happening in the final moments of trading.
Fusaro highlighted that earlier in Wednesday’s trading session, all ETFs were trading close to their estimated Net Asset Value (NAV). He further stated that slight premiums or discounts to NAV are expected, depending on market conditions and the balance of buying and selling activities.

BTC Price Collapse to $50,000 Likely?

There’s been solid selling pressure recently as the Bitcoin price has been breaking down under all support zones recently. Also, the next support zone for Bitcoin is currently at its 200-day EMA somewhere around $52,000. However, if the BTC price fails to hold this support, it could further plummet all the way down under $50,000, and even to $42,000, as per some market analysts.