Bitcoin, the dominant cryptocurrency in the market, has experienced a significant decrease in value over the past few hours, highlighting the extreme volatility in a challenging economic environment. The price of this digital currency plummeted from US$63,446 to US$60,200, causing alarm among investors and analysts.
The primary reason for this sudden decline seems to be the recent tightening of economic conditions in the United States, which is characterized by an increase in inflation expectations and cautious statements from members of the Federal Reserve (Fed). The latest inflation data, which showed a rise in expectations for next year from 3.2% to 3.5%, and a rise in five-year expectations from 3.0% to 3.1%, has put the markets on high alert.
Furthermore, there have been significant outflows from Spot Bitcoin ETFs in the US, particularly the GBTC, which experienced negative flows of over $100 million. These movements reflect a direct response to growing concerns about inflation and the potential impact of monetary policies on the economy.
Additionally, consumer sentiment in the US has deteriorated, with the University of Michigan index falling from 77.2 in April to 67.4 in May, the lowest level in six months and below market expectations of 76. This decline in optimism may have contributed to the instability in the cryptocurrency market.
In response to the current conditions, members of the Fed have adopted a cautious approach. Lorie Logan, a representative of the Fed, emphasized the existence of significant risks of inflation and stated that it is too early to consider a rate cut. She stressed the need for flexibility in their policies. Federal Reserve Governor Bowman also highlighted the importance of maintaining long-term political stability.
As of today, Saturday, May 11, 2024, the BTC price was quoted at US$60,652.16, reflecting a 4% drop in the last 24 hours and a nearly 6% drop over the week.
This uncertainty in the cryptocurrency market has resulted in a massive sell-off. Coinglass data indicates that over US$150 million was liquidated in the cryptocurrency market in the past 24 hours, significantly impacting the market. The prices of Bitcoin and other altcoins have also seen drops ranging from 2% to 4%.
Mike McGlone, a senior commodities strategist at Bloomberg, commented on the situation, stating, “The highly volatile and speculative nature of the 24/7 traded crypto caused it to rise against gold the last time the e-mini S&P futures 500 surpassed its 50-week moving average in November. However, this time, the Bitcoin/gold cross is falling.”
Disclaimer: The views and opinions expressed by the author or anyone mentioned in this article are for informational purposes only and do not constitute financial, investment, or other advice. Investing or trading cryptocurrencies carries a risk of financial loss.
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