Markets
Bitcoin fails to maintain momentum after regaining $70,000 foothold in early June
With Bitcoin prices around where they were three months ago, the leading cryptocurrency by market cap has been trading mostly lower or sideways since hitting the $70,000 mark once again about two weeks ago. This decline of about 7% is likely due to several factors rather than a single key incident, experts told Fortune.
One of the reasons why relative stagnation is the plateau of the 11 spot Bitcoin exchange-traded funds. Interest had increased in January after the SEC approved ETFs, which now hold more than $53 billion combined, according to CoinGlass data. However, most of the inflows occurred during the first two months of trading: by March 13, $55.3 billion in assets had flowed into the funds, meaning that since then contract. Over the past week, net outflows reached $580.6 million.
Another factor affecting Bitcoin’s growth is the difficult mining conditions. Bitcoin’s meteoric rise was also driven by the anticipation of April 19th halving, where the supply of newly minted coins was reduced by 50%, from 6.25 to 3.125 per block. As a result, the hashrate, or the total computing power used to mine Bitcoin,it was volatile. After the halving in April, the rate absorbed by 11% over the next four weeks, then recovered briefly before falling again.
Matthew Sigel, head of digital asset research at VanEck, told Fortune that this is “typical” post-halving instability as “miners are struggling to earn profits given the doubling of the cost per coin.” Sigel said this consolidation phase could continue, but he expects Bitcoin’s price to eventually be substantially higher before the US elections in November. He also noted that Bitcoin’s recent movement is typical of a bull market. While the coin is currently in the shadow of its all-time high, after an all-time high, price corrections of up to 20% are common, Sigel adds. “An 11% decline is no cause for concern.”
David Lawant, head of research at FalconX, told Fortune that the recent price decline can also be explained by “relatively weak liquidity.” For example, Bitcoin’s average daily trading volume in June fell to less than half that of March, in both spot and futures markets. But the long-term stagnation was caused by macroeconomic and political uncertainties, he says.
Bitcoin is hovering near the lower end of its range as market participants are “still pondering” where the next price catalyst will come from. Areas of ambiguity holding investors back include the path of U.S. monetary policy and the upcoming elections. Regarding the former, the Federal Reserve has predicted that interest rates will remain higher for longerwhich is at odds with data suggesting inflation may be cooling down. The market is trying to “square” this situation, Lawant says.
As for the election, as both parties attempt to court cryptocurrency-minded voters, former President Donald Trump calls himself the “cryptocurrency president,” according to Reuters. Last week, during a meeting with Bitcoin miners at his Mar-a-Lago estate, he vowed to “stop Joe Biden’s crusade to crush cryptocurrencies.” While a Trump victory would inevitably be bullish for cryptocurrencies, surveys they suggest he has just a 1.1% lead over Biden, and the slim battle is creating an uncertain political landscape, leaving markets to watch and wait.
More broadly, Bitcoin has made a colossal comeback over the past year, gaining over 150%.