Bitcoin has suffered significant losses in recent days. April was its weakest month since November 2022, when the FTX scandal rocked the market, and May has also started off on a disappointing note. Some market observers interpret this downturn as a warning sign for the broader market.
Recent positive developments such as the U.S. approval of the first spot ETFs and the anticipation of the halving have lost their luster, replaced by macroeconomic concerns surrounding Bitcoin. According to data from the analytics platform Coinglass, the cryptocurrency shed about 15% in April, marking its worst month in over a year. The beginning of May has not been promising either, with a current downturn of about 5%.
A key concern among market participants is the possibility that the U.S. Federal Reserve may maintain high interest rates longer than initially expected, which has recently caused yields on government bonds and the dollar to rise. Some investors now see Bitcoin’s weakness as a potential precursor to a waning risk appetite in global markets, looking for signs of a changing liquidity dynamic that could also impact other asset classes.
Bitcoin acts like an early warning system, similar to a canary in a coal mine, according to Charlie Morris, Chief Investment Officer at ByteTree Asset Management. “It signals trouble in the financial markets, but we can be confident that a recovery will eventually occur,” Morris noted. He also mentioned that the recent strength of the dollar might suggest that the market could remain tense for now.
Lower Interest Rates, Higher Prices?
However, the situation for cryptocurrencies and other risky assets could quickly improve, especially if inflation pressure eases and markets anticipate a more relaxed stance from the Fed.
“The next three to four months will be less optimistic and more risk-focused, with the market closely monitoring inflation, employment, and economic data to avoid unexpected shocks or to gain confidence in possible interest rate cuts,” said Youwei Yang, Chief Economist and Vice President at crypto-mining company BIT Mining, in an interview with Bloomberg.
Bitcoin Strives for Stability
After the price temporarily plummeted to $56,555 on Wednesday ahead of the interest rate decision, it rebounded to as high as $59,368. However, it failed to maintain this level, dropping back towards the $57,000 mark. On Thursday morning, Bitcoin is now attempting to stabilize around $57,500.