Bitcoin (BTC) has shown signs of recovery since last Thursday, but it remains likely to experience its first monthly decline since December. The primary cryptocurrency, valued by its market capitalization, was trading around $27,800 at the time of writing, reflecting a 7.5% increase from the previous week’s lows below $25,900.
However, despite this improvement, prices are still down approximately 5% for the month, marking the first monthly decrease of the year (assuming this loss is maintained until the UTC close on Wednesday). Bitcoin had a positive performance in January, March, and April, while February ended with minimal change.
Compared to Ether (ETH), Bitcoin appeared poised to record a monthly decrease of approximately 7%.
Bitcoin’s disappointing monthly performance coincides with bond traders reestablishing their belief that the Federal Reserve (Fed) will maintain higher interest rates for an extended period due to persistent inflation and a robust job market. Previously, traders in the interest rate market anticipated a decrease in the Fed funds rate, which is the primary borrowing cost, to reach 4.5% or even lower by the conclusion of 2023, down from the current rate of 5%. However, the market sentiment has shifted, and now there are no expectations of the Fed implementing any interest rate cuts within this year.
Bitcoin (BTC) has shown signs of recovery since last Thursday, but it remains likely to experience its first monthly decline since December. The leading cryptocurrency, valued by its market capitalization, traded around $27,800 at the time of writing, reflecting a 7.5% increase from the previous week’s lows below $25,900. However, despite this improvement, prices are still down about 5% for the month, marking the first monthly decrease of the year (assuming this loss is maintained until Wednesday’s UTC close). In comparison to Ether (ETH), CoinDesk data indicates that Bitcoin appeared poised for a monthly decline of nearly 7%.
Bitcoin’s underwhelming monthly performance aligns with the renewed belief among bond traders that the Federal Reserve (Fed) will keep interest rates higher for a longer duration due to persistent inflation and a resilient labor market. Previously, interest rate traders anticipated a drop in the Fed funds rate, the primary borrowing cost, to reach 4.5% or even lower by the end of 2023, down from the current rate of 5%. However, the market no longer foresees the Fed implementing any rate cuts this year.
The recent shift in sentiment towards a more hawkish Fed has given a boost to the U.S. dollar this month, leading to a 2.7% appreciation against a basket of fiat currencies, including the euro. It’s worth noting that Bitcoin generally moves inversely to the dollar.
Capital has been exiting the cryptocurrency market since early last year, and this trend has continued in the current month, with the market capitalization of stablecoins reaching a 20-month low of $130 billion. Stablecoins are digital assets pegged to an external reference like the U.S. dollar and have been widely used to purchase other cryptocurrencies in recent years.
Markus Thielen, head of research and strategy at crypto services provider Matrixport, suggested that the market may need a new driver or theme to push prices higher, as the previous liquidity wave related to lower inflation appears to have run its course. While the tech sector has found new momentum with advancements like AI and Chat GPT, Bitcoin has yet to benefit from these developments.
Bitcoin’s correlation with Wall Street’s technology-heavy index Nasdaq has weakened as Nasdaq has experienced a nearly 8% increase this month. According to Griffin Ardern, a volatility trader at crypto asset management firm Blofin, the ongoing high-interest rate environment will work against Bitcoin bulls. Ardern explained that in such an environment, investors are drawn to high-risk-free returns offered by money market funds, making the lack of liquidity in the crypto market persist.
Dick Lo, the founder and CEO of quant-driven crypto trading firm TDX, commented that Bitcoin’s 4% surge on Sunday was a relief rally triggered by the announcement of a provisional deal by U.S. leaders to raise the $31.4 trillion debt limit reached in January. However, Lo cautioned that further gains for Bitcoin may be difficult to achieve.