Crypto Analyzer

The Impact of Federal Reserve Rate-Cuts and ETF Demand on Bitcoin Prices

Recently, Bitcoin prices have experienced a significant decline due to various factors such as cooling demand for dedicated US exchange-traded funds (ETFs) and changing expectations regarding Federal Reserve monetary policy. The digital asset dropped by as much as 5.3%, hovering at around $66,920 in London on Tuesday. Other tokens popular among meme enthusiasts, like Pepe and dogwifhat, also saw a decline, leading smaller digital assets to experience their largest two-day dip in about two weeks.

One of the major contributing factors to this decline is the diminishing interest in Fed interest-rate cuts, which has led investors to shift their focus towards Treasury yields and the US dollar. With increasing US price pressures, speculators in the global market, including the digital-asset sector, are facing a tougher environment.

Stefan von Haenisch, head of trading at OSL SG Pte, noted that the altered expectations around the Fed’s policy are impacting the entire cryptocurrency market. He stated, “There has been a selloff as the week gets underway — no sector is unaffected, especially those where prices have outperformed Bitcoin over the last six months, for example memes.”

Bitcoin, which hit a peak of $73,798 in mid-March, has declined by around 10% since then. Additionally, there has been a decrease in the daily inflows into US spot-Bitcoin ETFs, which has had a negative impact on the value of the cryptocurrency. On Monday, investors withdrew a net $86 million from a group of 10 Bitcoin products, totaling about $12 billion since their launch on Jan. 11.

Moreover, the latest US economic data revealed unexpected growth in manufacturing for the first time since September 2022, alongside an increase in input costs. This information led to a reduction in the amount of Fed easing priced into swap contracts for this year, which is less than what policymakers had anticipated.

Furthermore, as the supply of new Bitcoin tokens is set to halve this month, some traders consider this event as a potential support for the cryptocurrency. However, others believe that additional gains may be challenging since Bitcoin has already quadrupled in value since the beginning of 2023.

With changing market dynamics and evolving investor sentiment, the cryptocurrency market is witnessing fluctuations that are influenced by various economic indicators and policy decisions. It remains to be seen how Bitcoin and other digital assets will perform in the coming weeks amidst these shifting conditions.