Bitcoin recently experienced a surge in value, surpassing $37,000 between November 10th and 12th. However, it was short-lived, and by November 13th, its value had undergone a correction towards $35,000. This sudden movement triggered the liquidation of long futures contracts worth $121 million. Although Bitcoin’s price stabilized at around $35,800 on November 14th, investors are pondering the reasons behind this downturn.
One of the catalysts behind this movement was the unexpected softening of United States inflation data on November 14th. The Consumer Price Index (CPI) showed a 3.2% increase in October compared to 2022, leading to a decline in yields on U.S. short-term Treasurys. The buying activity in traditional assets as a result of lower yields, which potentially reduced the demand for alternative hedge instruments like Bitcoin, was part of the reason behind the downturn. If the Federal Reserve’s strategy to curb inflation without causing a recession is successful, Bitcoin’s appeal as a hedge could diminish.
Even Moody’s rating agency lowering its outlook on the U.S. credit to negative did not swing favorably towards Bitcoin and other alternative hedges. Instead, investors sought refuge in short-term 5.25% fixed-income instruments, which explains why gold struggled to surpass $2,000 despite escalating debt levels and global economic challenges. Moreover, investors’ cautious stance on riskier assets like Bitcoin could have been attributed to China’s economic situation, given that it is the world’s second-largest economy. October’s retail sales data from China indicated a 7.6% increase, but it concealed underlying issues, notably a 9.3% decline in property sector investments in the first ten months of the year, indicating modest benefits from China’s economic stimulus measures.
Aside from China’s economic situation, recent political developments surrounding U.S. government shutdown threats could also influence Bitcoin’s performance. The U.S. House of Representatives passed a bill to keep the government operational through the holiday season, temporarily averting a fiscal crisis. However, this measure sets the stage for potential spending disputes in the coming year, including a provision to cut federal spending by 1% across the board in 2024 if no agreement is reached.
Additionally, a fraudulent BlackRock XRP trust filing on November 13th drew regulatory scrutiny towards the crypto sector at a sensitive time when numerous spot Bitcoin ETF applications await review by the U.S. Securities and Exchange Commission (SEC). On November 13th, Bloomberg ETF analyst James Seyffart stated that approval for a spot Bitcoin ETF should not be expected before January. Despite these events not being directly linked to Bitcoin, the outcome represents a net positive for the cryptocurrency market.
It is essential to note that the drop in Bitcoin’s value could not be attributed to a single event. Investors may have reassessed their positions, considering Bitcoin’s substantial $725 billion market capitalization. Furthermore, several factors contributed to Bitcoin’s challenge in maintaining momentum above $37,000, such as data supporting the Federal Reserve’s strategy for a soft economic landing and concerns over global economic growth. These elements continue to create an unfavorable landscape for Bitcoin’s value, especially if the SEC delays decisions on spot BTC ETFs, aligning with market expectations.
Despite Bitcoin’s stringent monetary policy ensuring scarcity and predictability, major global corporations can repurchase their stock using earnings, reducing the available supply effectively. Additionally, during economic downturns, these trillion-dollar companies can leverage their strong balance sheets to acquire competitors or expand their market dominance.