Bitcoin Retreats Amid Market Selloff, Enters Bear Market Territory

Bitcoin posted its third consecutive day of decline on Wednesday, its biggest monthly loss since late 2022, despite regaining the $57,200 level. The retreat mirrors a broader trend of investors withdrawing from the cryptocurrency sector ahead of the Federal Reserve's interest rate decision.

Bitcoin Retreats Amid Market Downturn, Faces Bear Market Concerns

Bitcoin, the dominant cryptocurrency, has experienced a sustained decline over the past three days, extending its monthly losses to their most significant extent since the end of 2022. Despite this downturn, Bitcoin managed to recover to the $57,200 level.

The cryptocurrency market has seen a broader trend of investors withdrawing from the sector in anticipation of the Federal Reserve's imminent interest rate decision. This decision is expected to have significant implications for interest rate-sensitive assets.

In April, Bitcoin's value plummeted by nearly 16% as investors realized profits from a bullish rally that had propelled prices to record highs exceeding $70,000.

According to the most recent data, Bitcoin lost 8% to $57,325, marking its lowest value since late February. Ethereum, another prominent cryptocurrency, suffered smaller losses, declining by 5.9% to $2,880, its weakest performance since February.

With Bitcoin now trading 22% below its March peak of $73,700, the cryptocurrency has technically entered bear market territory. However, it has maintained its 35% annual gain, doubling in value compared to this time last year. This growth has been driven in part by the billions of dollars that have flowed into newly established exchange-traded funds (ETFs) since January.

Analysts attribute the recent downturn to profit-taking by investors who entered the market during the dips in 2022 and 2023, as well as ETF investors who have witnessed substantial asset appreciation since the start of 2024.

Macroeconomic factors are also playing a role. While the Federal Reserve is not anticipated to alter interest rates, investors are increasingly speculating that the central bank may postpone rate cuts this year. This has negatively impacted interest rate-sensitive assets such as cryptocurrencies, stocks, and bonds in emerging commodity markets.

Data from LSEG indicates outflows of up to $496 million this week, primarily due to a slowdown in inflows into BlackRock's iShares BTC Trust, the ETF with the largest asset holdings.

The "halving event" in April, which entailed a modification to Bitcoin's underlying technology intended to reduce the rate of new BTC creation, had a muted impact on the cryptocurrency's price. Since the April 20 event, the digital asset has lost approximately 15%.

Analysts remain cautious about Bitcoin's short-term prospects, with some predicting further declines in the absence of a significant market catalyst. However, the cryptocurrency's long-term outlook remains uncertain, with the potential for continued growth but also the risk of further volatility.