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Bitcoin Price Drops – But What Next?

Last Updated March 15, 2024 8:28 AM
Teuta Franjkovic
Last Updated March 15, 2024 8:28 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Rising inflation data and a strengthening dollar are causing investors to shy away from riskier assets like Bitcoin.
  • Bitcoin’s recent price decline can be seen as a correction after its significant surge of around 70% in 2024.
  • The lack of rate cuts and a hawkish Fed stance further contributed to this pullback.
  • The cryptocurrency market remains opaque, making it difficult to pinpoint the exact drivers of price fluctuations.

During the Asian trading session on Friday, March 15, Bitcoin’s value  dropped to a low of $67,000, marking a 7% decrease, before it climbed back up to approximately $68,500.

According to CoinGlass , there hass been a significant impact on the market. More than $100 million in long positions were erased in the past 12 hours. Meanwhile, longs worth $167 million were liquidated over the course of the last 24 hours.

Bitcoin Loses Shine as Inflation Fears Resurface

Bitcoin is one of many cryptocurrencies that slipped. This week has also seen pressure on other assets, including gold  and the Nasdaq,  Wall Street’s technology-centric index.

So far this year, enthusiasts bullish on Bitcoin have been relieved from closely monitoring economic indicators and the Federal Reserve’s monetary policies, thanks to the strong demand for the cryptocurrency spurred by new spot Exchange-Traded Funds (ETFs). However, this trend is beginning to shift.

Th eUS Producer Price Index  (PPI) for February, released on Thursday morning, offered further evidence that inflation remains more persistent than anticipated. According to the American government’s report, the PPI increased by 0.6% last month, a rate that not only doubled January’s pace but also exceeded economists’ predictions by twice the amount. The core PPI, which excludes the volatile categories of food and energy, saw a rise of 0.3% in February. While this represents a deceleration from January’s 0.5% increase, it still surpassed the expected 0.2%.

Inflation Soars, Dollar Surges: Headwinds Mount for Bitcoin

At the beginning of this week, the US Consumer Price Index  (CPI) also reported higher-than-expected figures, indicating an acceleration in inflation to an annual rate of 3.2%. Moreover, the core inflation rate, which excludes food and energy prices, climbed to 3.8%.

After nearly falling below the 4% mark earlier in the month, the yield on the 10-year Treasury note has now increased  to 4.30%. Concurrently, the US dollar has reversed a downward trend that started in mid-February, gaining about 1% over the last week, which includes a 0.5% increase on Thursday. Generally, higher interest rates and a strengthening dollar are considered unfavorable for risk assets such as Bitcoin (BTC).

10 years treasury rate
Credit: YCharts

Fed Hawks Circle: Rate Cuts Off the Table, Bitcoin Feels the Chill

Expectations for a significantly more lenient monetary policy in 2024 are being steadily scaled back. At the start of the year, the markets anticipated up to 150 basis points in rate reductions from the Federal Reserve in 2024, with the first cut expected to occur at the upcoming Federal Open Market Committee (FOMC) meeting next week. However, analysts have now adjusted their expectations, with no rate cut anticipated at next week’s meeting or even in May. Looking towards June, the likelihood of a rate decrease has dwindled to approximately 50%, as per the CME FedWatch Tool. 

Following a surge of approximately 70% in 2024, reaching a new all-time high just below $74,000, Bitcoin inevitably faced a potential correction. The recent developments concerning inflation, interest rates, and the strength of the dollar may have provided traders with a reason to reduce their positions. After reaching a peak of $73,800 earlier on Thursday, Bitcoin’s value declined  to as low as $70,650 following the release of economic data. At the time of writing (March 15 2024), it was trading at $68,439, marking a decrease of more than 6.6% over the past 24 hours.

What Could Happen With Bitcoin Next?

Some Bitcoin enthusiasts argue that Bitcoin’s scarcity contributes to its value. The principle is straightforward. If the supply of a commodity decreases, then, assuming all else remains constant, its price should increase as demand continues. Therefore, a reduction in Bitcoin’s supply should, potentially, elevate its price, according to some analysts and traders. This logic is, however, contested by others who argue that its current price would already reflect any such impact.

Crypto miners significantly influence the availability of Bitcoin in the market. However, this sector remains shadowy, with limited data on inventory and supply levels. Should miners decide to liquidate their reserves, this could exert downward pressure on Bitcoin prices.

Understanding the drivers behind a cryptocurrency rally is challenging, especially given the lack of transparency in the crypto market about who is buying and why, a stark contrast to more traditional markets. The primary catalyst for this year’s Bitcoin surge is almost certainly the United States Securities and Exchange Commission’s approval of Bitcoin ETFs in January. However, the anticipation of interest rate cuts by central banks is also a factor.

However, in the speculative realm of cryptocurrency trading, analysts’ explanations for fluctuations in Bitcoin’s price can quickly morph into market narratives. These narratives, in turn, may become self-fulfilling, influencing the market’s direction and investor behavior.

What Happened After Previous Halvings?

There is no conclusive evidence  to suggest that previous Bitcoin halvings have directly led to an increase in Bitcoin’s price. However, traders and miners have analyzed historical halving events in an attempt to gain a strategic advantage.

Following the most recent halving on May 11, 2020 , Bitcoin’s price saw an approximate 12% increase in the subsequent week. Later in the year, Bitcoin embarked on a significant rally, attributed to various factors such as relaxed monetary policies and an influx of retail investors driven by pandemic-induced lockdowns, rather than the halving itself.

Similarly, a halving in July 2016  resulted in a modest 1.3% price increase in the week that followed. Nevertheless, the price dropped a few weeks later.

Bitcoin halvings
Credit: LSEG/CoinGecko

Determining the exact influence of halvings on Bitcoin’s price is challenging. This, in turn, makes it difficult to predict the outcomes of future halvings. Regulatory bodies have consistently cautioned that Bitcoin operates within a speculative market, susceptible to hype and the “Fear Of Missing Out” (FOMO), posing significant risks to investors. Despite these warnings, regulators continue to authorize Bitcoin trading products.

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