Bitcoin price collapses one week before halving

With the slump, from which Bitcoin was able to recover to some extent, the asset is now trading around 10 percent below the current high of around USD 73,800 per BTC set a month ago.

When Bitcoin was able to turn positive against the overall market after the price slide in reaction to the surprisingly high US inflation figures reported on Wednesday, some market observers already drew attention to Bitcoin's small decoupling.

However, hopes that the supposed decoupling could be longer-term ultimately faded when Bitcoin again fell more sharply than the stock market on Thursday and Friday and even fell significantly below Wednesday's interim low.

Rising inflation makes it less likely that the US Federal Reserve will cut interest rates any time soon. Generally speaking, low interest rates are seen as positive for the capital markets. This was also underlined by the rally in equities and Bitcoin in particular when the Federal Reserve lowered the key interest rate to close to zero in response to the coronavirus lockdowns.

Before the inflation rate of 3.5% in March, which was 10 basis points higher than expected, the market was still assuming that the US Federal Reserve would cut interest rates for the first time in June. Currently, it looks like July or even September at the earliest. Although more and more analysts are suggesting that there could be no interest rate cut at all this year, the market currently only sees the probability of this at around 10%.

US President Joe Biden, who is hoping to be re-elected in November, also spoke out again on monetary policy. The 81-year-old remains convinced that the Federal Reserve will cut interest rates this year despite the rising inflation figures.
I am sticking to my forecast that there will be a rate cut before the end of the year. It might just be delayed by a month, I'm not sure.
_{Joe Biden at a press conference}

How consumer goods prices and monetary policy in the US will develop is still written in the stars. However, it is foreseeable that, if inflation allows it to some extent, the central bank, which may only be independent on paper, will loosen monetary policy noticeably. Especially in an election year, the Federal Reserve is reluctant to strangle the financial markets and the economy with high interest rates. And in view of the USA's escalating national debt, a lower interest rate would certainly ease the burden on the US budget.

The escalating conflict between Iran and Israel also weighed on the capital markets towards the end of the trading week. Joe Biden announced on Friday that he expects Iran to attack Israel "sooner rather than later". The seriousness of the situation is also made clear by the fact that the USA has increased its military presence in the region in order to support its ally in fending off the expected attacks. The government in Tehran threatened to retaliate after a suspected Israeli attack on the Iranian embassy in Damascus earlier this month.

As usual, the markets reacted to the increasing risk of escalation on Friday in the face of uncertainty: The US stock index S&P 500 corrected by around 1.5 percent over the course of the day and the US dollar, as a safe haven, appreciated noticeably against other currencies.

Although Bitcoin has proven its worth many times in crisis situations, the asset is apparently not yet the haven of security in the minds of many market participants that convinced Bitcoin enthusiasts see in the asset.

The halving, in which the amount of new Bitcoin per block is halved from 6.25 to 3.125, takes place in less than 1,000 blocks or around a week. Although the newly added BTC make up an ever smaller proportion of the total amount, the tradable supply on exchanges has also fallen significantly since the previous halving in 2020 - from around 3 million to just over 2 million BTC.

Accordingly, some market observers expect the upcoming halving to be a catalyst for sharply rising prices, as has always been the case in the past.

When investing in the stock market, it's "don't bet against the Federal Reserve". If you're a Bitcoin buyer: "Don't bet against the Halving". This thing changes everything: the supply goes down, the demand goes up, the price goes up. That's the natural economic interplay of supply and demand.
_{Tim Draper, venture capitalist and billionaire told Cointelegraph}

People said then that the ETFs were priced in and now they're saying the halving is priced in - I don't believe that either. I think Bitcoin still has a lot of upside.
_{Anthony Scaramucci, hedge fund manager and former White House communications director told CNBC}

The coming weeks and months will show whether the dynamic between supply and demand, which is expected to change on Saturday, has actually not yet been priced in.

In addition to halving, there are other catalysts that may soon drive up the price. Bitcoin spot ETFs could also be approved in other countries in the foreseeable future. This would enable large investors in these regions to invest in the asset via the established structures.

On the one hand, the approval of Bitcoin spot ETFs in Hong Kong is to be announced by the supervisory authority SFC on Monday. This was reported by the Bloomberg news service, which cited people familiar with the matter. As asset managers from mainland China have also submitted applications, Singapore-based crypto analytics firm Matrixport believes that the investment vehicles could face demand of around USD 25 billion from China.

Secondly, the South Korean Minju party, which has promised to allow Bitcoin spot ETFs to be traded in the Republic, won the parliamentary election by a clear margin. It remains to be seen whether ETFs will actually become tradable in the near future in the country, which is also known for its high level of Bitcoin adoption.

Although an 8% correction in just a few hours may cause panic among some investors, it is important to note that this is common for Bitcoin. With the price slide, Bitcoin just fell back to the level at which the asset was quoted on Thursday of the previous week.

As many market participants are leveraged in the Bitcoin and crypto market, a falling or rising price can quickly be accelerated by liquidated trading positions. As whistleblower Edward Snowden commented, Friday's price slide is no reason to freak out.