The Powell Effect on Bitcoin Continues: Weekly Loss Exceeds 6%
Bitcoin continues to lose value following the statements made by Fed Chairman Jerome Powell and the Fed's monetary policy decisions. Powell dismissed speculation regarding the U.S. Central Bank's potential to accumulate Bitcoin reserves, stating that the government would not make any moves to store large amounts of Bitcoin. This announcement came after the Fed's two-day policy meeting.
Fed Interest Rate Cut and Market Reaction
The Fed cut interest rates by 25 basis points in line with expectations and indicated that it only anticipates a two-quarter point reduction for 2025. This number of cuts fell short of the three to four cuts the markets had anticipated. This development raised concerns among investors and increased selling pressure on risk assets. Bitcoin, affected by this environment, retracted from its recent gains.
Why Did Bitcoin and Other Cryptocurrencies Decline?
The primary reason for the downturn in the cryptocurrency market was the Fed's decisions regarding interest rate policy. While the bank reduced interest rates by 25 basis points, it suggested that no further cuts would be made for 2025. Expectations of continuing high inflation led to declines in U.S. stock markets and rising yields on U.S. Treasury bonds. Cryptocurrencies, including Bitcoin, lost value in this context.
In the cryptocurrency market, investors faced profit-taking and panic selling. Technical analysis approaches such as mean reversion and the Wyckoff Method led investors to realize their profits and return prices to historical averages. The price decline in Bitcoin reshaped investors' perceptions and strategies. Despite withdrawals in the cryptocurrency market, market sentiment continues to remain in the "increased risk" zone.
Significant Outflows from ETF Funds
High sales in Bitcoin and Ethereum ETFs accelerated the loss of value in the crypto market. Following Fed Chairman Powell's remarks, investors withdrew substantial amounts from Bitcoin ETFs, including those from Fidelity and Grayscale. A total outflow of $671.9 million was observed from Bitcoin ETFs. Ethereum ETFs also registered a net outflow of $60.5 million, and Ethereum's price retreated from the $4,000 resistance level.
Although Bitcoin attempts to show resistance at the $96,000 support level, the possibility of a continued downtrend still exists. The cryptocurrency market appears to have recovery potential by closely monitoring Bitcoin's movements. However, investors are cautiously approaching the recovery phase following the recent decline, expressing concerns that prices may start to decline again after a brief rise.