Bitcoin Wobbles, Entering New Decline Phase Amid Profit-Taking and Economic Headwinds

Bitcoin's price plummeted nearly 16% in April due to profit-taking after reaching record highs, but remains up 35% year-to-date. Analysts attribute the decline to ETF investors cashing out after substantial gains and the prospect of continued interest rate hikes by the Federal Reserve, negatively impacting interest rate-sensitive assets like cryptocurrencies.

Bitcoin Wobbles, Entering a New Phase of Decline Amidst Profit-Taking and Economic Headwinds

The cryptocurrency market has witnessed a significant sell-off in April, with the world's most traded cryptocurrency, Bitcoin, enduring a 16% plunge. This drop marks a sharp correction from the parabolic rally that pushed Bitcoin to all-time highs above $70,000 earlier this year. However, despite this recent volatility, Bitcoin remains 35% higher year-to-date.

The plunge commenced with Bitcoin shedding 5.6% of its value, reaching its lowest point since late February. At the time of writing, Bitcoin is trading at $57,001, down 4.8%, while Ether, the second-largest cryptocurrency by market capitalization, has witnessed a more modest decline of 3.6% to $2,857, its lowest level since February as well.

The recent downturn has pushed Bitcoin into bear market territory, signifying a 22% drop from its record high of $73,803 set in March. Nonetheless, Bitcoin's year-to-date performance remains positive, and it has doubled in value since this time last year, largely attributed to billions of dollars flowing into newly minted exchange-traded funds (ETFs) since January.

According to Matteo Greco, a research analyst at Fineqia, "The current downtrend stems from increased profit-taking by investors who entered the market during the downturns of 2022 and 2023, coupled with ETF investors who experienced significant price appreciation on their shares after investing in the early weeks of 2024."

The contagion effect has also impacted crypto-related stocks, with premarket trading witnessing declines. Coinbase, a popular cryptocurrency exchange, has lost 4.6% of its share value, while crypto miners Riot and Marathon Digital have dropped 4.2% and 4.3%, respectively.

The macroeconomic landscape has further exacerbated the sell-off. The Federal Open Market Committee (FOMC) is widely expected to maintain interest rates, but growing sentiment among investors suggests that the Fed may not cut rates at all this year. This has dealt a blow to interest rate-sensitive assets, including cryptocurrencies, emerging market stocks, bonds, and even commodities.

Investors have responded swiftly, with the 10 largest US spot Bitcoin ETFs facing their most significant weekly outflow since their inception in January. Outflows have reached $496 million this week, predominantly due to a slowdown in inflows into BlackRock's iShares Bitcoin Trust, the largest ETF in terms of holdings.

Analysts believe that Bitcoin's decline is entering a new phase, extending beyond the two largest tokens to impact even smaller alt-coins. Coingecko, a crypto website, reports that Solana's SOL token has lost nearly a quarter of its value over the past seven days, as have meme coins Dogecoin and Shiba Inu, which gained popularity in 2021 partly due to endorsements from Tesla CEO Elon Musk.

Despite the "halving event" — a change to Bitcoin's underlying technology designed to reduce the rate of new Bitcoin creation — that occurred in April, it has failed to provide meaningful support to the price. Since April 20th, when the halving event took place, Bitcoin has shed 15%. Many investors had bought into the market in anticipation of the event, but the price has since declined.

Alex Kuptsikevich, a senior market analyst for the FXPro platform, observed that Bitcoin's decline is entering a new stage from a charting perspective. He highlighted that "May is a month of seasonal weakness for Bitcoin. Moreover, the recent price drop brings support levels of $55,700 and $51,000-$52,000 into focus."

However, Kuptsikevich also noted that "today's FOMC announcements and Friday's monthly jobs data have the potential to accelerate or reverse the downtrend."

The cryptocurrency market remains highly volatile, and investors should proceed with caution. As economic conditions continue to evolve and regulatory frameworks take shape, the market's trajectory could shift dramatically.