As an analyst with over two decades of experience navigating volatile markets and cryptocurrencies, I find myself cautiously optimistic amidst the recent sell-off of Bitcoin ETFs and the broader cryptocurrency market. The current downturn appears to be primarily driven by the Fed’s revised interest rate cut expectations for 2025, which has triggered a general risk-off sentiment among investors.
In light of a broad shift in investor predictions about potential interest rate reductions by the Federal Reserve (Fed) in 2025, there was an unprecedented withdrawal of approximately $680 million from Bitcoin Exchange-Traded Funds (ETFs) on Thursday – marking the single largest outflow seen since these investment vehicles were first approved in January.
Grayscale And Bitwise Bitcoin ETFs Experience 8% Decline
Due to Bitcoin ETF investors withdrawing their funds, the price of Bitcoin dropped by 5%, reaching roughly $97,400 at the end of the week. This sell-off corresponds with a broader trend in risky assets, which was sparked by the Federal Reserve’s revised economic forecasts released earlier this week.
In contrast to their earlier predictions, the Federal Reserve now plans for just two small interest rate adjustments of 0.25% over the next twelve months, marking a substantial decrease from the initial expectation of four such cuts that were suggested in their September gathering.
In the period following the Federal Reserve’s latest directive, well-known Bitcoin Exchange Traded Funds (ETFs) such as Grayscale’s Bitcoin Trust and Bitwise’s Bitcoin ETF have dropped by around 8%. During this same duration, Bitcoin itself has seen a decrease of approximately 9%.
Significantly, the Bitcoin ETFs in the U.S. saw outflows on Thursday, ending a 15-day streak of inflows and marking a net withdrawal of around $5.3 billion over that timeframe.
On Thursday, the leading cryptocurrency in the market dipped below $100,000 after reaching a new peak of over $108,000 earlier this week. Before its recent minor upturn, it had slumped as low as $92,000.
The pessimistic outlook in the markets might stem from the Federal Reserve’s cautious approach, but it could also be driven by regular profit-taking among large institutional investors who hold Bitcoin ETFs during traditional seasonal changes.
Analysts Warn Of Continued Crypto Sell-Off
As a researcher examining current market trends, I’ve observed that the recent selling pressure could potentially exacerbate overall market sentiment, a point highlighted by Joseph Dahrieh, the managing principal at Tickmill.
He noted that this decrease might significantly impact both the cryptocurrency market and overall investor confidence, especially since Bitcoin dropped below $100,000. This suggests possible short-term fluctuations and increased risks of a downturn.
The intense fluctuations have been fueled by large-scale sell-offs in both long and short investments, amounting to approximately $240 million over a single day. Antonio Di Giacomo, an analyst at XS.com, stated, “The Federal Reserve’s conservative approach towards signaling fewer rate reductions in 2025 has sparked uncertainty and conjecture.
In the coming days, it’s possible that the decline in the cryptocurrency market may continue. Alex Kuptsikevich, an analyst at FxPro, predicts that the combined value of all cryptocurrencies could dip below $3 trillion, a decrease from its peak of $3.7 trillion this month.
He warned that if the price drops below $94,500, it could break the upward trend of the past six weeks. If it falls even lower, to $92,000, it would dip beneath the 50-day moving average. In such a scenario, the bears (those betting on a decrease in price) might have the advantage of time on their side.
Currently, at the moment, Bitcoin has successfully maintained its position above $97,400, even as the week concludes, following a drop of approximately 4% in the past day.
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2024-12-21 13:34