Bitcoin experienced a significant $5,000 drop in value within a day due to a sudden increase in interest rates. The flagship cryptocurrency fell over 6% to $65,150.00, with a two-day loss of about 7%, as reported by Coin Metrics. This sudden decline was triggered by rising Treasury yields and strength in the U.S. dollar.
On Monday, Bitcoin was trading at around $70,000 before economic data revealed growth in the manufacturing sector and investor expectations on rate cuts cooled down. The cryptocurrency is now down about 11% from its all-time high reached on March 14.
Following Bitcoin’s decline, other cryptocurrencies like Ether also saw a decrease, with a 4.5% drop to trade at $3,319.08. The 10-year U.S. Treasury yield hit its highest level of the year, and the U.S. dollar, inversely related to Bitcoin, reached its highest point in nearly five months.
According to Joel Kruger, a market strategist at LMAX Group, the recent correction in Bitcoin’s price was not unexpected given its explosive performance in Q1. He noted that stronger U.S. economic data and ongoing inflation concerns have led to a reevaluation of Fed expectations, resulting in increased demand for the U.S. dollar due to higher yield differentials.
The price drop may have been exacerbated by a significant transfer of over 4,000 Bitcoin to the Bitfinex exchange by a large holder, signaling potential selling activity. This coincided with the sudden drop in Bitcoin’s price on Monday night.
Stocks linked to Bitcoin’s performance also took a hit. Coinbase fell by 4%, while MicroStrategy, a firm that serves as a proxy for Bitcoin’s price, lost nearly 7%. Mining companies like Marathon Digital, Riot Platforms, and CleanSpark saw declines ranging from 6% to 7%.
Looking ahead, April may bring volatility to the crypto market, particularly for mining stocks. The upcoming Bitcoin halving event, where miner rewards will be reduced, could impact their revenues. However, historically, such events have paved the way for significant rallies in Bitcoin prices in the months following the halving.
Despite the recent drop, Bitcoin remains up by 54% for the year 2024, indicating its resilience amidst market fluctuations.
