Bitcoin continues significant decline

Bitcoin continues significant decline as week begins with low-risk appetite

Written by Samer Hasn, Senior Market Analyst at XS.com

Bitcoin is down more than 1% today, failing to hold the $94,000. This decline is leading to a wave of declines in the altcoin market, such as Ethereum and XRP, which are down by about 3%.

Bitcoin’s continued declines come amidst a lack of catalytic factors, in addition to a climate of low-risk appetite. The weak appeal of risk assets is causing the stock market to continue to decline, which in turn is driving the overall trends of the cryptocurrency market.

These factors have led to continued weak activity in the Bitcoin futures market, which has lost more than $10 billion in open positions since about a month ago, according to CoinGlass. Bitcoin ETFs have also recorded outflows in the previous two sessions of more than $700 million, according to SoSo Value.

That pressure, in turn, came from pessimism about the possibility of a rate cut during the first half of this year, especially after the generally better-than-expected labor market data in the United States that we witnessed last week. After the US non-farm labor market added 256,000 jobs and unemployment unexpectedly fell in December, according to data from the Bureau of Labor Statistics, markets no longer expect a cut before next June.

According to the CME FedWatch Tool, the probability of the Fed cutting interest rates by 25 basis points from the current range next May is less than 30%.

This negative outlook about borrowing costs remaining high for a long time will limit the ability of risky assets to follow through on gains. However, this narrative is not new to the markets, and Bitcoin has managed to record new highs despite the prevailing negativity since 2022.

Accordingly, markets will wait for more signs that confirm the ability of the economy and companies to adapt to the tight monetary environment. If we see these signs, along with the expected structural change in the regulatory and legislative environment for cryptocurrencies, Bitcoin may ignore this surrounding negativity and head back to new historical highs – previous gains have already supported by these hopes.