(Bloomberg) — Bitcoin’s slide is sparking interest among investors who see the digital token’s sharp swings as a possible precursor to broader changes in risk appetite in global markets.
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The cryptocurrency has lost about 4% over the past two days after a nearly 16% plunge in April, the worst monthly decline since the implosion of Sam Bankman-Fried’s FTX digital asset empire in November 2022. The token changed hands at $57,462 on 7:00 a.m. Thursday in London, around a two-month low.
Some investors are scouring Bitcoin’s inflections for clues about changing liquidity dynamics that may disrupt other assets. The token has slipped in recent weeks as the Federal Reserve signaled that interest rates would stay high for longer, a mantra that has tightened financial conditions by increasing Treasury yields and the dollar.
“Bitcoin is our favorite canary,” Charlie Morris, chief investment officer of ByteTree Asset Management, wrote in a note. “This points to difficulties ahead in the financial markets, but we can be sure that they will bounce back at some point.”
The largest digital asset hit a record high of nearly $74,000 in mid-March, supported by a surge of inflows into early U.S. cash exchange-traded funds, such as BlackRock Inc. and Fidelity Investments.
Demand for these products subsequently collapsed and markets failed to benefit from this week’s launch of spot-Bitcoin and Ether ETFs in Hong Kong.
Discounts to the net asset value of some U.S. portfolios have widened significantly, highlighting the challenges associated with Bitcoin’s volatility. On Wednesday, the group of U.S. cash ETFs suffered its largest daily net outflow on record.
Read more: Buffets record US Bitcoin ETF outflows BlackRock and Fidelity Funds
Macro forces
Bitcoin has recorded four April declines in the past decade, three of which predicted losses averaging 18% in May, according to data compiled by Bloomberg.
Still, if inflationary pressures ease and markets restart bets on a much looser Fed stance, cryptocurrencies and other speculative investments could find some relief.
Fed Chairman Jerome Powell maintained hope for a rate cut this year after the central bank concluded its latest meeting on Wednesday. But he also acknowledged that a surge in inflation has eroded confidence in easing price pressures.
“The next three to four months will be less optimistic and more risk-oriented, with the market closely monitoring inflation, employment and economic data for any unexpected shocks or to gain confidence about future prospects. possible rate cuts,” said Youwei Yang, chief economist and vice president. chairman of crypto miner BIT Mining Ltd.
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