Higher interest rates seem to be putting a damper on cryptocurrencies, with Bitcoin in particular feeling the pinch. Following its worst monthly decline since the fall of Sam Bankman-Fried's FTX empire in November 2022, Bitcoin continued to struggle. In April, the value of the largest digital currency plummeted nearly 16%, cooling off after a surge that saw it reach nearly $74,000 in March, partly driven by excitement over US spot-Bitcoin exchange-traded funds (ETFs).
Even the introduction of Bitcoin and Ether ETFs in Hong Kong on Tuesday didn't give the market the boost many hoped for. Despite being a significant event locally, the six new ETFs only saw $12.7 million in trades on their first day, a figure that pales in comparison to the $4.6 billion traded on the first day of similar products in the US back in January.
As the Federal Reserve wraps up its policy meeting on Wednesday, there's growing speculation that they might postpone any rate cuts. This comes as new U.S. data shows an increase in labor costs, hinting at persistent inflationary pressures. The rising real yields, which reflect the true borrowing costs, create a challenging environment for speculative assets like cryptocurrencies and even impact traditional safe-havens like gold and U.S. stocks.
As of Wednesday morning in London, Bitcoin was down another 3% trading at around $58,000, marking a two-month low. Other cryptocurrencies like Ether and the popular meme-token Dogecoin were also experiencing downturns.
Interestingly, despite the hype, nearly $182 million was withdrawn from nearly a dozen US spot-Bitcoin ETFs in April, contrasting sharply with the $4.6 billion that flowed into these funds in March. Seth Ginns of Coinfund noted on Bloomberg Television that the ETFs had initially exceeded expectations, which likely contributed to Bitcoin's rapid price rise earlier.
Also notable in April was a "halving" event on the Bitcoin network, an occurrence every four years that cuts the production rate of new tokens in half, which some believe should boost the token's value. However, this hasn't seemed to significantly lift Bitcoin prices this time around.
According to Matteo Greco, a research analyst at Fineqia International, the recent downward trend in Bitcoin could be traced back to increased selling by investors who got into the market during the low points of 2022 and 2023, and by ETF investors who cashed in after seeing substantial gains in early 2024.