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Bitcoin Corrects Amid Profit Taking and Fed Meeting Jitters, Crypto Stocks Slump
Key points
- A sell-off in bitcoin has put it firmly in correction, more than 10% lower than last week’s all-time high.
- Profit-taking after a rapid rise in prices and nervousness ahead of tomorrow’s Federal Reserve meeting may have been behind the decline in bitcoin prices.
- Lower rates would weaken U.S. Treasury yields, making riskier assets like cryptocurrencies more attractive to investors.
- Bitcoin’s decline has dragged down other crypto tokens and cryptocurrency-related stocks like MicroStrategy.
Bitcoin (Bitcoin) was trading just below $65,000 Tuesday afternoon ahead of the Federal Reserve’s interest rate decision tomorrow. The sell-off spread to broader cryptocurrency markets, dragging other cryptocurrency-related tokens and stocks lower.
Bitcoin in correction, eyes on the Fed
Technically Bitcoin is in a correction, meaning it is trading more than 10% lower than its previous high of $73,000, set not a week ago.
And this big move in the largest cryptocurrency by market capitalization has also extended to Ether (ET), Solana (SOL) and Cardano (ADA), which also saw sharp declines in trade.
Cryptocurrency investors are very close looking at the Federal Reserve this week for clues about the timing or size of an interest rate cut. Lower rates would weaken U.S. Treasury yields, making riskier assets like cryptocurrencies more attractive to investors. However, higher rates for a longer period would harm the ability to invest in riskier assets to some extent.
THE Bank of Japan It also raised rates on Tuesday for the first time in 14 years, which could signal potential pressure on U.S. Treasuries. The market is also paying attention to the consequences of halving next month, when the price of the cryptocurrency is expected to rise.
ETFs led the rally, not the correction
Demand for bitcoin generated by spot bitcoin ETFs, which began trading in January this year, has been attributed to the cryptocurrency’s recent price rally. Despite nearly $12 billion in outflows from Grayscale’s Bitcoin ETF Trust (GBTC) since other ETFs began trading, it is not the ETFs that are moving the cryptocurrency, according to Eric Balchunas, a Bloomberg Intelligence ETF analyst.
“The selling of Bitcoin started last week when there were inflows into the ETF,” he said in an interview. “These are sales that come from outside the ETFs. So it comes from within the cryptocurrency world.”
The selling has been steady and is in line with the price of Bitcoin, which has had a “pretty gentle run” from $40,000 to over $73,000.
“It’s not possible to go up at that rate that fast for that long,” Balchunas said.
Cryptocurrency stocks are suffering
MicroStrategy (MSTR) shares fell as much as 16% on Tuesday before recouping some of those losses after the company revealed details of its most recent bitcoin buying spree.
It added about 9,245 bitcoins worth about $623 million in just seven days through March 18, using money raised through a bond offering and about $30 million in extra cash. The average price for the entire purchase was $67,382 per bitcoin. It now holds about 214,246 bitcoins or about 1% of the bitcoins that can exist with a supply limited to 21 million.
The bitcoin halving event in April could be bad for bitcoin miners as it will make it harder for them to earn money. And some mining stocks are already feeling the heat. Digital Marathon (MARA), Riot Blockchain (REVOLT) and Cleanspark (CLSK) fell in trade. Coinbase Cryptocurrency Trading Platforms (CURRENCY) and Robinhood (HOOD) were also trading lower.