Bitcoin’s crash could be a harbinger of trouble ahead for global markets

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Bitcoin has lost about 4% of its value in the past two days after a nearly 16% drop in April

Bitcoin’s fall in price has piqued the interest of investors who see the cryptocurrency’s sharp price swings as a possible harbinger of broader shifts in risk appetite in global markets, Bloomberg reports.

Bitcoin has lost about 4% of its value in the past two days after a nearly 16% drop in April, the worst monthly decline since the collapse of Sam Bankman-Fried’s FTX exchange in November 2022.

The largest cryptocurrency is down 4.6% in the past 24 hours to $57,400 as of 7:50 a.m., near a two-month low.

Some investors are analyzing Bitcoin’s liquidity dynamics for signs of change in other assets as well. Cryptocurrencies have fallen in price over the past few weeks as the US Federal Reserve has signaled that interest rates will remain higher for longer, a mantra that has tightened financial conditions and boosted yields on Treasuries and the dollar.

“Bitcoin is our favorite harbinger of trouble,” writes ByteTree Asset Management’s chief investment officer Charlie Morris. “It warns of impending problems in the financial markets, but we can be confident that at some point it will recover.”

Bitcoin/Gold Ratio. Graphics: Bloomberg

“The recent strengthening of the US dollar may be a signal of an impending market contraction,” adds Morris.

The biggest digital asset hit a record high of nearly $74,000 in mid-March, boosted by an influx of funds into new U.S. bitcoin-linked exchange-traded funds (ETFs) from companies such as BlackRock and Fidelity Investments.

Demand for these products subsequently waned, and markets failed to get a headwind from Hong Kong’s Bitcoin and Ether funds launched this week. Discounts to the net asset value of some US wallets widened to record levels, underscoring the challenges that bitcoin’s volatility can bring.

Over the past decade, the biggest cryptocurrency has had four price declines in April, three of which preceded losses in May as well (an average of 18%), according to data compiled by Bloomberg.

Still, if inflationary pressures ease and markets revive bets on Fed monetary easing, crypto and other speculative investments could find some relief.

Fed Chairman Jerome Powell kept alive hopes of a rate cut this year after the central bank concluded its last meeting on Wednesday. But he also acknowledged that accelerating inflation in America had undermined confidence that price pressures were easing.

“The next three to four months will be less optimistic and more risk-oriented, with the market closely monitoring inflation, employment and economic data for unexpected shocks or to gain confidence about a potential rate cut,” commented Yuwei Yang, chief economist and vice president of cryptomining company BIT Mining Ltd.