Bloomberg's latest article on Thursday, May 2, states that Bitcoin's sharp drop has attracted investor interest, who believe the significant fluctuations in this digital token could be a precursor to broader changes in global market risk preferences.
Bitcoin has fallen about 4% over the past two days, following a nearly 16% plunge in April, marking the biggest monthly decline since Sam Bankman-Fried's FTX digital asset empire collapsed in November 2022.
During Thursday's trading in Asia, Bitcoin hit $57,359 in Singapore, its lowest point in two months.
Some investors are using Bitcoin trades to look for clues about liquidity dynamics that might impact other assets. As the Federal Reserve hints at maintaining higher interest rates for a longer period, Bitcoin prices have recently dropped. This stance by the Fed has pushed up U.S. Treasury yields and the dollar, thereby tightening financial conditions.
Charlie Morris, Chief Investment Officer at ByteTree Asset Management, wrote in a report, "Bitcoin is our favorite canary. It is a warning of future troubles in the financial markets, but we are confident it will rebound at some point."
Morris added, "The recent strengthening of the dollar may foreshadow a tightening of the markets in the future."
In mid-March, driven by significant investments from companies like BlackRock Inc. and Fidelity Investments into U.S.-listed Bitcoin exchange-traded funds (ETFs), Bitcoin, the largest digital asset, reached a new all-time high of nearly $74,000.
However, demand for these products gradually faded, and the market did not get a boost from the spot Bitcoin and Ethereum ETFs launched in Hong Kong this week. Some U.S. portfolios have seen their net asset values widen to record levels, highlighting the challenges posed by Bitcoin's volatility.
According to data collected by Bloomberg, Bitcoin has declined four times in April over the past decade, with three of those instances suggesting an average 18% drop in May.
However, analysts note that if inflation pressures in the U.S. ease and the market starts to bet on a much looser stance from the Fed, cryptocurrencies and other speculative investments might see some relief.
Federal Reserve Chairman Jerome Powell maintained hope for rate cuts this year after concluding the latest meeting on Wednesday, although he also acknowledged that the outbreak of inflation had weakened confidence that price pressures were easing.
Youwei Yang, Chief Economist at Bit mining, a cryptocurrency mining company, stated, "Over the next three to four months, the market will be less optimistic and more risk-oriented, closely monitoring inflation, employment, and economic data to deal with any unexpected shocks or gain confidence in potential rate cuts."
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