Bitcoin (BTC) dropped more than 5% on Tuesday, falling below the $60,000 mark after a lackluster first day of spot Bitcoin ETF trading in Hong Kong and in light of recent US economic data suggesting persistent inflation. This data strengthens the argument for the Federal Reserve to delay cutting interest rates.
Bitcoin, which had nearly reached $65,000 in early Asian trading, was last seen around the $59,900 level.
As macroeconomic and fundamental pressures mount, technical analysis indicates that BTC might be facing a near-term correction into the $50,000s.
Since mid-April, Bitcoin’s price has consistently met resistance at its 21-day and 50-day moving averages, suggesting bearish control.
Additionally, Bitcoin has formed a descending triangle pattern over the past few weeks, which often signals a bearish breakout is looming.
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If Bitcoin’s price breaks below its recent range low of $60,000, it could quickly retest the $53,000 level, indicating a potential 12% short-term drop from current prices. This shift would mean that Bitcoin’s decline from its March all-time high near $74,000 would increase to almost 30%.
Hong Kong Spot Bitcoin and Ether ETF Launch Disappoints
The launch of spot Bitcoin and Ether ETFs in Hong Kong on Tuesday turned out to be a disappointment.
Hong Kong ETF providers had generated significant hype before the launch, claiming that Hong Kong’s launch could outshine the US market. However, total trading volumes amounted to just under $12.5 million, according to Bloomberg data shared on X. Specifically, the new Hong Kong Bitcoin ETFs recorded less than $10 million in trade volume.
Expectations were high, with predictions of $300 million in inflows on the first day. However, the actual trading volume totaled only $12.4 million, as noted in a tweet by wallstreetbets on April 30, 2024.
This outcome was a major letdown for the market, possibly contributing to the significant drop in Bitcoin’s price following the announcement of these numbers.
The underwhelming debut of the Hong Kong ETFs coincides with a slowdown in inflows into spot Bitcoin ETFs in the US. According to The Block, flows have been net negative since last Wednesday.
![](https://sollcrypto.com/wp-content/uploads/2024/05/Screen-Shot-2024-05-01-at-7.24.54-AM.png)
The Block’s data shows that flows have been net negative since last Wednesday. Nevertheless, the introduction of these ETFs in one of the world’s leading financial hubs is a significant step for the cryptocurrency industry.
Macro Headwinds Continue to Build
The weak debut of the Hong Kong Bitcoin ETF has added to the selling pressure in the cryptocurrency market, but another major factor is the continued build-up of macroeconomic headwinds.
US economic data indicating higher-than-expected inflation in employment costs for Q1 is exacerbating concerns. The US Employment Cost Index rose by 1.2% in the first quarter of 2024, compared to a 0.9% increase in the prior quarter, surpassing market expectations of 1% growth. This uptick in employment costs, driven by rising wages, is fueling speculation that US inflation will remain “sticky,” potentially above the Federal Reserve’s 2.0% target.
Given this scenario, it’s unsurprising that Federal Reserve policymakers seem at ease with the market’s recent shift in expectations regarding interest rate cuts. According to CME data, the market-implied probability of no rate cuts by September has increased to 50%, a significant jump from just 6.5% one month ago. The probability of no rate cuts for the entirety of 2024 has also risen to 25%, compared to 1% a month earlier.
Bank of America (BoA) noted that the Federal Reserve is in a “wait-and-see” mode, looking for more clarity on inflation before making further moves. Walter Bloomberg tweeted that BoA believes Federal Reserve Chairman Powell is likely comfortable with the market’s substantial reduction in expectations for rate cuts this year. Similarly, a recent Wall Street Journal article by respected Fed analyst Nick Timiraos suggested that the Fed would indicate its willingness to keep rates high for longer.
These developments are reflected in the strong performance of the US Dollar Index (DXY) and US government bond yields. The DXY rebounded above 106 on Tuesday, approaching yearly highs at 106.50, while the US 10-year Treasury yield was at 4.68%, nearing last week’s high of 4.74%.
Bitcoin typically underperforms when financial conditions tighten—that is, when higher interest rates, a stronger dollar, and rising bond yields are expected. These trends indicate that Bitcoin could face further headwinds in the near term.
Is the Bitcoin Bull Market Ending?
Weak ETF inflows, tightening financial conditions, and bearish technical patterns could lead Bitcoin into the $50,000s soon. Does this suggest an end to the Bitcoin bull market that began in late 2022?
Despite the uncertainty and fear, doubt, and skepticism (FUD) spreading on social media platforms like X, it’s unlikely that the bull market has reached its end.
First, considering Bitcoin’s typical four-year cycle, there’s still about 1.5 years of bull market left. This perspective is supported by the recent occurrence of the Bitcoin halving, a major catalyst in previous cycles.
The first three Bitcoin halvings all preceded significant price surges to new record highs, though typically after a period of 4-6 months.
Bitcoin Halving Cycle
An observation shared by Rekt Capital on X points out that the latest Bitcoin halving could continue the trend of past cycles. Although there’s concern about price action following this halving, Bitcoin’s performance leading up to it was unprecedented. For the first time, Bitcoin achieved a new all-time high prior to the halving, potentially raising the risk of a post-halving correction.
Nonetheless, this doesn’t rule out new all-time highs in late 2024 or 2025. Rate cut expectations have been delayed, but the peak of US interest rates has likely passed, suggesting that eventual rate cuts could act as a tailwind for the market.
The economic environment poses risks, but they tend to lean toward economic weakness in the US and reduced inflation, rather than sustained strength. Interest rates remain at multi-decade highs, and the yield curve has been inverted for over a year. If the US economy weakens, leading to a quicker reduction in inflation, it could expedite rate cuts.
So, while Bitcoin’s current dip could lead to further declines, the bull market narrative still holds, supported by the cyclical nature of Bitcoin and the potential for future rate cuts.
Can ETF & Safe-Haven Demand Drive Bitcoin Higher?
Several other factors could boost Bitcoin. Most potential buyers of US ETFs haven’t entered the market yet.
Many investors need to complete due diligence before investing in new products. Others don’t yet have access to these ETFs as they aren’t available through their bank or brokerage.
Risks lean heavily towards a continued increase in inflows in the coming years. This suggests that assets under management (AUM) in spot Bitcoin ETFs are likely to keep growing.
The broader narrative around Bitcoin as “digital gold” is also gaining traction. BlackRock CEO, Larry Fink, argued on Fox Business that Bitcoin is the modern equivalent of digital gold, emphasizing its potential as a hedge against inflation and its ability to mitigate counterparty risks associated with traditional government-backed assets.
This shift in narrative indicates a growing acceptance of Bitcoin in traditional financial circles, which could lead to more companies and countries adopting it as a reserve asset as Wall Street increases its allocation.
Bitcoin might also continue to attract safe-haven demand if concerns over geopolitical or financial stability resurface. The Federal Reserve’s rate hikes have put significant pressure on regional US banks, and any resurgence of issues in this sector could drive more interest in Bitcoin.