- Bitcoin has returned below $100,000.
- The price drop occurred against a backdrop of strong economic data in the United States.
- Market analysts examine the impact of macroeconomic factors on the price of Bitcoin.
Trump-era Bitcoin hype is facing a reality check.
The leading cryptoasset’s latest rally came to a screeching halt and dropped to $95,000 on Wednesday, a 7% decline this week. The broader crypto market also lost 7% of its value to $3.48 trillion in the past 24 hours.
The fall coincided with strong economic data from the United States on Tuesday, including an increase in job postings and the manufacturing sector.
These positive economic figures reinforce Federal Reserve Chairman Jerome Powell’s position that reducing the pace of interest rate cuts this year could be enough to manage inflation.
Macro driven
This is troubling news for Bitcoin investors.
Their previous bullish optimism was based on the combination of aggressive central bank interest rate cutting and Donald Trump’s second presidency ushering in regulatory clarity for crypto.
“In the absence of a new narrative to latch onto in crypto, the market is currently following traditional financial habits,” said Philipp Pieper, co-founder of Swarm Markets, a DeFi platform for stock trading tokenized. DL News.
Investor appetite for riskier assets like cryptocurrencies and tech stocks tends to increase when interest rates are low, motivating traders to seek higher returns.
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Pieper said the current febrile market conditions will persist until investors are clearer about the Trump administration’s crypto policies.
Macroeconomic data will remain crucial in forecasting the price of Bitcoin, analysts at crypto research firm 10x Research said in a report released Wednesday.
They cited the Fed’s response to strong U.S. economic data and global liquidity as two main macroeconomic drivers of Bitcoin’s price.
In the short term, Bitcoin could slide into the banana zone created by the two macro factors. The banana zone describes a range of volatile price movements per asset. It gets its name from its shape and the fact that things tend to go a bit like bananas on it.
BitMEX founder Arthur Hayes also made reference to the liquidity of the dollar and its impact on the price of Bitcoin in his latest blog post.
Hayes said Bitcoin and crypto prices rise when dollar liquidity increases.
Always in demand
Despite the current market turmoil, analysts say the overall sentiment towards Bitcoin remains optimistic.
On-chain data from crypto analytics provider CryptoQuant shows that apparent demand for Bitcoin “remains very high.”
The metric compares the volume of idle Bitcoin to the issuance of new Bitcoins by miners. It is considered high if the decrease in unused Bitcoin still far exceeds the new supply of Bitcoin from miners.
Analysts also referred to Bitcoin’s historical price action to allay fears of a collapse.
Bitcoin fell in January after the last two US presidential elections. In January 2017 and January 2021, Bitcoin fell by 36%.
Crypto market players
- Bitcoin fell 4% in the last 24 hours to trade at $95,380.
- Ethereum is down 5.5% to trade at $3,373.
What we read
Osato Avan-Nomayo is our DeFi correspondent based in Nigeria. It covers DeFi and technology. Do you have any advice? Please contact him at osato@dlnews.com.
