What is the reason for Bitcoin’s decline since its peak in March?
Bitcoin’s price has experienced a significant drop from its peak in March due to factors such as a stronger U.S. dollar and geopolitical tensions. Currently trading at around $63,000, it has pulled back 15% from its all-time high of $73,750. The surge to the peak was largely driven by the approval of spot Bitcoin ETFs by the U.S. SEC in January 2024, attracting institutional investors and pushing prices to record levels. Additionally, Hong Kong regulators recently approved spot Bitcoin and Ethereum ETFs, further boosting positive sentiment.
However, despite these favorable developments, geopolitical tensions in the Middle East have dampened investor enthusiasm. The fear and greed index, which measures investor sentiment, has seen a sharp decline from its previous highs, indicating a gradual erosion of confidence. This could be due to a combination of geopolitical uncertainties and profit-taking.
Several macroeconomic factors are currently influencing Bitcoin’s price. Firstly, the U.S. dollar has been strengthening over the past few weeks, coinciding with a decline in Bitcoin’s price. The U.S. Dollar Index, which measures the Greenback against a basket of foreign currencies, has surged by 1.84%. If this upward trajectory continues, Bitcoin may face further downward pressure unless there is a fresh rally to counterbalance the dollar’s strength. The strengthening of the dollar is primarily driven by changing expectations regarding interest rate cuts by the U.S. Federal Reserve, as inflation is projected to reach 4.8% by the 2024 election, raising concerns about inflationary pressures.
Secondly, rising geopolitical tensions, particularly in the Middle East, have potential implications for Bitcoin and other financial markets. During times of geopolitical turmoil, investors tend to seek refuge in safe-haven assets such as the U.S. dollar and gold. Historically, geopolitical conflicts have often coincided with rallies in the U.S. dollar.
Considering these factors and the upcoming halving event, which is just days away, Bitcoin’s price could experience increased volatility in the coming days. Analysts warn of a potential bearish phase if the price falls below the support level of $58,900. However, there is also the possibility of a slow upward trend if Bitcoin can hold its current support levels. It is important for investors to remain calm and only invest what they can afford to lose.
