The Bitcoin price has fallen below the USD 60,000 mark and is trading at its lowest level since the end of February. With a price loss of 15 percent, April was the worst month for the asset since November 2022. In the month in which the crypto exchange FTX failed, Bitcoin fell by almost 17 percent. At its lowest point today, one Bitcoin cost just USD 56,600, which is 30 percent less than the current all-time high of just under USD 74,000 set in mid-March.

This was due to weak ETF data from the USA and Hong Kong as well as concerns about higher inflation in the USA. As usual, this sell-off is also reinforced by heavy liquidations by active market participants.

Weak ETF demand

Since mid-March, when Bitcoin also set its current all-time high, inflows into the US Bitcoin spot ETFs approved in January have stagnated. Since demand here has waned, the Bitcoin price has also gone into correction mode.

A week ago, BlackRock's Bitcoin ETF ($IBIT) ended its series of inflows. Over the previous 71 trading days, the world's largest asset manager's Bitcoin investment product had seen daily inflows. The second strongest new Bitcoin ETF, the one from asset manager Fidelity ($FBTC), has already recorded outflows for four days. It does not help that fewer funds have been flowing out of Grayscale's investment product ($GBTC), which has been converted from a closed-end fund into a spot ETF, in recent trading days.

Debut for Bitcoin ETFs in Hong Kong disappoints

Yesterday, Bitcoin and Ethereum spot ETFs celebrated their first day of trading on the Hong Kong Stock Exchange. However, the debut seemed to have disappointed the market, which is perhaps also due to the sometimes astronomical forecasts made in advance.

The new six ETFs recorded a trading volume of just around 12 million US dollars on the first day of trading in the Chinese Special Administrative Region. By comparison, the investment products were traded with a volume of 4.6 billion US dollars on the first day in the USA.

Although the trading volume is very low, the ETFs have soaked up a lot of capital. ETF expert Eric Balchunas explains the discrepancy between the high investment volumes of the ETFs and the low trading volume by the fact that the issuers have already collected capital before the official launch.

On the whole, the ETF experts at Bloomberg believe that the debut was actually a success - even if the reaction of the Bitcoin price suggests a major disappointment.

This was a very successful launch for Hong Kong. Just very different from what some on this website and elsewhere were predicting or hoping for.
James Seyffart, Bloomberg ETF expert on 𝕏

We've tried to warn everyone not to lower expectations on Hong Kong (especially compared to the estimated $25 billion from the original Hopium forecast). Still, when you localize the numbers, it was HUGE: e.g. the ChinaAMC Bitcoin ETF raised $123 million on its first day, which already puts it in 6th place out of 82 ETFs launched in Hong Kong in the last 3 years, and in the top 20% overall.
Eric Balchunas, ETF expert at Bloomberg

Concerns about US inflation not off the table

Data reported yesterday suggests that a second wave of inflation in the US is becoming increasingly likely. Wage inflation for the first quarter was higher than expected at 1.2 percent. Experts were expecting an average figure of 1 percent. And as higher wage costs also have an impact on the prices of goods and services, the market fears that US inflation will not quickly return to the 2% target from the current level of over 3%. This could further delay the anticipated interest rate cuts by the US Federal Reserve.

In addition to Bitcoin, the stock markets also fell sharply yesterday in response to this news. The Nasdaq 100 closed yesterday's trading day down almost 2%. As pretty much all asset classes benefit from low interest rates, the headwind for assets increases accordingly if the prospect of a looser monetary policy is postponed. At the beginning of the year, the market was still expecting several interest rate cuts in 2024 - the current expectation is just one.

The Federal Reserve is meeting tonight and it is almost certain that the monetary authorities will keep the key interest rate in the range of 5.25% to 5.50%. However, it will be interesting to see what outlook the central bank signals for the coming months. However, the fact that presidential elections will be held in the USA in November suggests that interest rates will be cut soon, despite inflation currently standing at 3.5%. The central bank, which may only be independent on paper, is reluctant to stifle the economy and the capital markets in an election year - especially as the US budget is increasingly suffering from the higher interest costs on the escalating mountain of debt.

Bitcoin bull market over?

Although Bitcoin could have a harder time for the time being due to a longer restrictive monetary policy, the current correction is no cause for concern. Price drops of 30% are nothing new for the asset, even in bull markets. For example, Bitcoin fell from around USD 42,000 to USD 29,000 at the start of 2021, only to more than double shortly afterwards.

Nevertheless, it cannot be ruled out that the asset will remain in correction mode. Summers tend to be historically weaker for both Bitcoin and the traditional markets. This is also where the stock market adage that you should sell in May comes from: "Sell in may and go away but remember to come back in september".

However, if the US Federal Reserve cuts interest rates soon despite the inflationary environment, it can be assumed that Bitcoin, as the asset most sensitive to this, will benefit the most and ETF inflows will pick up speed again.

In general, the positive characteristics of Bitcoin have not changed, although the environment around it is fluctuating.