Bitcoin's inability to surpass the $37,000 mark can be attributed to three key factors.
Bitcoin's recent decline to $35,000 can be attributed to reduced U.S. inflation, economic challenges in China, and uncertainties surrounding regulations.
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Bitcoin's Price Movement and Liquidations:
Bitcoin recently surged above $37,000 between Nov. 10 and 12, only to undergo a correction toward $35,000 on Nov. 13. This abrupt movement triggered the liquidation of $121 million worth of long futures contracts, and while Bitcoin’s price stabilized around $35,800 on Nov. 14, investors are left pondering the underlying factors behind this downturn.
Bitcoin 12-hour price index, USD. Source: TradingView
Inflation Data and Economic Challenges:
Part of the catalyst behind this movement was the unexpected softening of United States inflation data on Nov. 14. The U.S. Consumer Price Index (CPI) showed a 3.2% increase in October compared to 2022, leading to a decline in yields on U.S. short-term Treasurys. This triggered buying activity in traditional assets, potentially reducing the demand for alternative hedge instruments like Bitcoin.
Even Moody's rating agency lowering its outlook on the U.S. credit to negative from stable on Nov. 11 did not sway favorably toward Bitcoin and other alternative hedges. Instead, investors sought refuge in short-term 5.25% fixed-income instruments, explaining why gold struggled to surpass $2,000 despite escalating debt levels and global economic challenges.
China's Economic Indicators and Caution:
In China, October’s retail sales data indicated a 7.6% increase — the fastest since May. However, this apparent recovery conceals underlying issues, notably a 9.3% decline in property sector investments in the first 10 months of the year. China’s economic stimulus measures, including policy support and liquidity injections, have yielded only modest benefits.
Given that China is the world’s second-largest economy, its economic situation might contribute to investors’ cautious stance on riskier assets like Bitcoin, particularly when viewed within the broader global economic context. Additionally, recent political developments surrounding U.S. government shutdown threats could also influence Bitcoin’s performance.
U.S. Government Shutdown and Regulatory Uncertainties:
The U.S. House of Representatives passed a bill on Nov. 14 to keep the government operational through the holiday season, temporarily averting a fiscal crisis. However, this measure sets the stage for potential spending disputes in the coming year, including a provision to cut federal spending by 1% across the board in 2024 if no agreement is reached.
Spot Bitcoin ETF Expectations and Regulatory Scrutiny:
The cryptocurrency market experienced a negative reaction to a fraudulent BlackRock XRP trust filing on Nov. 13. Although it initially sparked hopes for an XRP spot exchange-traded fund (ETF) in the U.S., the $9 trillion asset manager swiftly dismissed the claim.
While this event is not directly linked to Bitcoin, it has drawn regulatory scrutiny to the crypto sector at a sensitive time when numerous spot Bitcoin ETF applications await review by the U.S. Securities and Exchange Commission (SEC). Consequently, irrespective of the parties involved, the outcome represents a net positive for the cryptocurrency market.
Heightened Fear of Global Economic Recession:
In essence, the drop in Bitcoin’s price after flirting with the $37,000 level cannot be attributed to a single event. Investors may have reassessed their positions, considering Bitcoin’s substantial $725 billion market capitalization. For comparison, Berkshire Hathaway, a major conglomerate, boasts a $760 billion valuation while posting profits of $76.7 billion in the past year.
Bitcoin’s stringent monetary policy ensures scarcity and predictability, but major global corporations can repurchase their own stocks using earnings, effectively reducing the available supply. Furthermore, during economic downturns, these trillion-dollar companies can leverage their strong balance sheets during economic downturns to acquire competitors or expand their market dominance.
Ultimately, Bitcoin’s challenge in maintaining momentum above $37,000 is influenced by factors such as data supporting the Federal Reserve’s strategy for a soft economic landing and concerns over global economic growth. These elements continue to create an unfavorable landscape for Bitcoin’s value, especially if the SEC delays decisions on spot BTC ETFs, aligning with market expectations.
