Bitcoin (BTC) price has seen a gradual decline in its bullish momentum to hit a new monthly low at $16,736 on Dec. 3.
The move follows a market-wide decline that has already set BTC capitulation records in the aftermath of the FTX-induced contagion.
Stocks started the day slightly up after losing nearly 1,000 points since the start of the week. To date, Bitcoin price remains closely correlated to equities and stock market investors have concerns about the policy discussions that will occur at the next Federal Open Market Committee (FOMC) meeting on Dec. 13.
BTC correlation to equities. Arcane Research
While some analysts believe Bitcoin’s bottom is near, others believe more downside is on the way due to BTC’s close correlation to DXY and equities.
Let’s investigate the main reasons why the Bitcoin price is down today.
On-chain data cites historic “peak realized losses”
Bitcoin price is reacting to a near year-long downtrend and the recent stress caused by FTX’s bankruptcy. The most recent price downturn came right as analysts predicted that a bear market bottom had been found.
Data from Glassnode shows Bitcoin hit an all-time low in realized profit-to-loss ratio.
Bitcoin realized profit and loss. Source: Glassnode
While this data may suggest that Bitcoin price recovery is possible, the overall market can continue to exacerbate these losses. Generally, these large losses may remove some entities from the market altogether, hindering recovery.
Rising interest rates in the US and abroad weigh on Bitcoin price
Based on the Consumer Price Index Report, inflation in the United States increased by 0.4% in October compared to the previous month. Inflation has been a determining factor in raising interest rates.
The Consumer Price Index report – the most widely followed barometer of inflationary pressure in the United States – climbed 7.7% in October compared to the same month a year ago.
With the upcoming CPI reporting event on Dec. 13, Bitcoin may continue to see volatility as the overall market reacts to the numbers.
FTX contagion led to deleveraging and reduced liquidity in the crypto market
In the last two weeks, balance sheet documents and other leaked spreadsheets have highlighted the high degree of commingling that was happening between market makers like FTX, Alameda and other major players in the crypto sector.
DCG’s Grayscale Bitcoin Trust currently holds 633,000 BTC, placing it as one of the largest holders of the digital asset. Another Digital Currency Group (DCG) subsidiary, Genesis Trading has exposure to FTX and the recent volatility has left an apparent $1 billion hole in their balance sheet. The fact that Genesis is struggling to secure funding, and signaling that it may have no other choice but to file for bankruptcy, is causing investors to believe another next black swan event is in the making.
Grayscale BTC holdings. Source: Coinglass
As market makers and firms struggle to maintain operations, the fall-out is witnessed directly through reduced trading volumes. According to Arcane Research, on Nov. 29, the real spot volume in BTC reached $510m, lows not seen since Oct. 2020. It should be noted that the statistic does not include Binance.
Real BTC-USD Daily Volume. Source: Arcane Research
Related: Why is the crypto market down today?
Further proof of a liquidity squeeze within the crypto market came from Blockstream, a top Bitcoin mining firm, raising funding at 70% lower than the company valuation. This is further proof that fallout from FTX may continue to ripple through large companies.
SoFi is also under pressure from regulators. The Senate Bank Committee warned the company in letters on Nov. 21 to conform to banking standards. A response by SoFi is demanded by Dec. 8. In addition to the letter to SoFi, the Senate Banking Committee sent a letter to Treasury Secretary Janet Yellen to step in and reduce spillover.
Is there a chance for Bitcoin price to reverse course?
The short-term uncertainties in the crypto market do not appear to have changed institutional investors’ long-term outlook. According to BNY Mellon CEO Robin Vince, a poll commissioned by the bank found that 91% of institutional investors were interested in investing in tokenized assets in the following years.
Around 40% of them already have cryptocurrency in their portfolios and approximately 75% are actively investing in digital assets or considering doing so.
Worries are high after the FTX meltdown and the large divestment from Bitcoin is reflected by the high realized losses and correlation to the overall macro equities environment. With the FOMC upcoming, further divestment to reduce risk is possible.
In the long term market participants still expect the price of Bitcoin to go up, especially as more banks and financial institutions are seemingly turning to digital cash for settlement purposes even amidst the chaos.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
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Author: Kyle White