Bitcoin (BTC) is experiencing its first seven-day decline in eight weeks, prompted by hawkish signals from the US Federal Reserve (Fed) that have led traders to sell off the asset, which has more than doubled in value this year.
The market’s leading cryptocurrency saw a drop of as much as 5.3% to $92,149 on Friday, following a record high of just above $108,000 earlier in the week. Since then the Bitcoin price has recovered the $97,500 mark, down approximately 5% since Sunday.
This downturn has also affected smaller cryptocurrencies, including Ethereum (ETH) and Dogecoin (DOGE), despite a generally positive performance in US equities.
The shift in sentiment is further highlighted by a significant outflow from US exchange-traded funds (ETFs) that invest directly in Bitcoin. On Thursday, these funds recorded a historic outflow of $680 million, ending a 15-day streak of inflows, according to data compiled by Bloomberg.
The heightened volatility in the crypto market follows a rally that began after Donald Trump’s victory in the US presidential election on November 5.
Analysts from QCP Capital have noted that positioning in the market had become “overly bullish,” leaving digital assets susceptible to fluctuations in the Federal Reserve’s tone regarding inflation control.
With the US Federal Reserve signaling a potential slowdown in its easing measures with its chair’s Powell announcement on Wednesday, the focus is shifting to the pace at which traditional financial institutions adopt cryptocurrency.
Hani Abuagla, a senior market analyst at XTB, stated in a recent note that the interplay of monetary policy, institutional adoption, and political developments suggests that Bitcoin will remain sensitive to both macroeconomic and crypto-specific catalysts through 2025.
This sentiment is echoed by Chris Weston, head of research at Pepperstone Group, who advised caution in the short term. Weston noted that while a collapse in price is not imminent, the momentum behind Bitcoin’s recent rally has diminished, indicating a shift in market control.
Market expert Lark Davis on the other hand, weighed in on the current price action, reassuring investors that historical patterns could suggest a rebound in the coming days.
The expert referenced December 2020, when Bitcoin experienced a 12% drop following a 77% rally in the preceding months but then surged from $17,000 to $41,000—a 136% increase—in just 23 days.
Davis posits that a similar scenario may be unfolding now, with Bitcoin facing a 13% dip after a robust fourth quarter. While he acknowledges the possibility of an additional 10-15% correction, he remains optimistic about the potential for further upward movement in the cryptocurrency market.
Featured image from DALL-E, chart from TradingView.com
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