Bitcoin has seen a sharp decline in the past 24 hours, pushing its price to nearly $60,000, at $59,808 at the time of writing. The decline came after comments from a former billionaire investor who was a supporter of Bitcoin but has suddenly changed his mind.
Over the past month, Bitcoin has lost nearly 15% of its value, driven by fears of a potential real market correction.
The cryptocurrency market is under additional pressure due to warnings from BlackRock, the world's largest asset manager.
Analysts at BlackRock described an unprecedented scenario in which central banks may need to keep interest rates higher than they were before the pandemic to manage persistent inflationary pressures.
This development could negatively impact Bitcoin prices and the broader cryptocurrency market, adding to the sell-off sparked by Powell and Yellen’s comments on the pressing US debt, which will be discussed in more detail at the end of the article.
Impact of Mt. Gox Debt Repayment
Adding to Bitcoin’s challenges is the potential for bankrupt cryptocurrency exchange Mt. Gox to begin repaying creditors, expected to begin in early July. Charles Edwards, founder of Capriole Investments, highlighted a surge in Bitcoin transactions, attributed to Mt. Gox’s upcoming dividend.
Mt. Gox owes more than $9.4 billion in bitcoin to about 127,000 creditors, a situation that could prompt many investors to liquidate their profits after a decade.
However, the potential market impact could be mitigated by continued institutional interest in Bitcoin. Bitcoin-linked exchange-traded funds in the US have amassed more than $52.5 billion in Bitcoin since their inception in January, suggesting that $9 billion from Mt. Gox could be absorbed by these large inflows.
As the cryptocurrency and financial markets prepare for these developments, all eyes will be on the Federal Reserve’s upcoming moves and the broader economic indicators that will shape the financial landscape in the near future.
Dovish and critical statements from US economic leaders have contributed significantly to the current market volatility, underscoring the interconnectedness between traditional fiscal policies and the cryptocurrency market.
US Debt..Real Concern from the Fed Man
Federal Reserve Chairman Jerome Powell pointed to a critical period for the U.S. economy during his speech at a European Central Bank conference in Portugal. Powell described the current level of U.S. debt as sustainable, but criticized the fiscal path as unsustainable.
He pointed in particular to the risks posed by the Biden administration's policy of running large deficits at full employment, a strategy he considered unsustainable in favorable economic times.
These statements have contributed to increased market anxiety, affecting both traditional and cryptocurrency markets.
Similarly, Treasury Secretary Janet Yellen issued a stark warning about the US debt, which is growing to $34 trillion. Analysts speculate that this growing debt could push the price of Bitcoin to an all-time high of $1 million in the next 18 months.
However, her warning also raised concerns about economic instability, which added pressure to the cryptocurrency market.
Market watchers are closely watching the Federal Reserve for any signs of interest rate adjustments. Although expectations initially included up to seven rate cuts in 2024, recent assessments have trimmed those expectations to just one or two.
Powell expressed concern about the importance of striking the right balance in monetary policy during this critical period, an issue that preoccupies him in the early hours of the morning. This cautious stance on interest rate cuts added to the uncertainty in the market, which contributed to the sell-off in Bitcoin.
Latest Fed Updates and Low Inflation Path
In its latest update, the Fed chose to keep interest rates steady but signaled the possibility of cutting them in 2024 with further cuts expected in 2025. This came after a period of large interest rate hikes in response to rising inflation caused by heavy spending during the Covid pandemic and money printing.
Powell also noted that the United States is back on a path to lowering inflation, but stressed that more data is needed before the Fed considers cutting interest rates.
Russ Mould, chief investment officer at AJ Bell, saw Powell’s focus on lowering inflation as a signal that the Fed may be closer to cutting rates, possibly starting in September. The cautious approach has kept investors on edge, weighing on both stocks and cryptocurrencies.
The financial community is now focused on the release of the minutes from the Federal Reserve’s June meeting and the upcoming jobs report. A weaker-than-expected jobs report could boost expectations for a September rate cut, a scenario the market is currently assigning a probability of around 70%.
