Bitcoin's Rally Stumbles as Market Cools, Fed Hawks Hold Sway

Bitcoin tumbled amid cooling demand for dedicated US ETFs and receding expectations of a more dovish Federal Reserve. The digital asset plunged over 5% before recovering slightly, with smaller tokens like Pepe and dogwifhat also facing declines. The rally in cryptocurrencies is waning due to persistent inflation concerns in the US, leading investors to reduce their bets on Fed rate cuts, which has boosted Treasury yields and the dollar.

Bitcoin's Rise Falters as Market Cools and Fed Hawks Prevail

Singapore (Bloomberg) -- Bitcoin, the bellwether of the digital asset market, has succumbed to a significant sell-off, erasing gains accrued earlier in the year. The cryptocurrency's descent has been fueled by waning demand for dedicated U.S. exchange-traded funds (ETFs) and a diminished belief in a dovish Federal Reserve monetary policy.

The initial surge in Bitcoin's value this year was predicated on the anticipation of interest rate cuts by the Federal Reserve, which would have lowered borrowing costs and boosted the appeal of speculative investments. However, recent US economic data, including robust manufacturing activity and escalating input prices, has dampened expectations for such a shift.

As a result, investors have retreated from Bitcoin and other riskier assets, turning their attention to more traditional investments. The recent inflow of funds into U.S. spot-Bitcoin ETFs has dwindled, with investors redeeming a net $86 million from the 10 products on Monday alone. This reversal of sentiment has weighed heavily on the largest digital asset.

"The crypto market has shown signs of weakness in the last 12 hours," observed Richard Galvin, co-founder of DACM, a digital asset management firm. "The latest US economic data has sparked a sell-off across the crypto space."

Adding to the downward pressure on Bitcoin is the impending halving of its issuance rate, which occurs every four years. While some market participants view this event as a potential catalyst for price appreciation, others argue that the token's quadrupling in value since the start of 2023 has left little room for further gains.

"The impact of the halving is already priced into Bitcoin," said Stefan von Haenisch, head of trading at OSL SG Pte. "The combination of diminished expectations for Fed easing and the lack of significant upside potential is driving the current sell-off."

The cooling of the crypto market has also affected smaller digital assets, with tokens like Pepe and dogwifhat experiencing sharp declines. This broader sell-off underscores the interconnectedness of the digital asset ecosystem and its vulnerability to broader market trends.

As the Fed remains steadfast in its fight against inflation, investors are becoming increasingly cautious about speculative investments. Bitcoin, which has long been a haven for risk-seekers, is not immune to this shift in sentiment. Consequently, the digital asset market is likely to face further headwinds until there is a more definitive shift in the macroeconomic landscape.