Bitcoin experienced a notable decline, reaching an over seven-week low and breaking key support levels, as the initial enthusiasm following the approval of several spot exchange-traded funds (ETFs) seemed to fade.
Bitcoin dropped by 4.3% to $39,867.0 by 19:54 ET (00:54 GMT).
Despite a strong rally over the past year fueled by expectations of Securities and Exchange Commission (SEC) approval for ETFs tracking Bitcoin’s price, the cryptocurrency’s performance has been lackluster since the approval. The SEC recently approved spot ETFs, including BlackRock’s iShares Bitcoin Trust, ARK 21Shares Bitcoin, and WisdomTree Bitcoin. However, these ETFs have seen declines of 13% to 14% since their debut, challenging predictions of a significant price surge with increased institutional investment.
Bitcoin faced pressure from a resilient U.S. dollar, driven by expectations that the Federal Reserve would maintain higher interest rates for an extended period. The belief that the Fed might delay rate cuts contributed to a reduction in bets on a rate cut in March 2024. Bitcoin’s recent gains were partly tied to expectations of a rate cut, but the cryptocurrency tends to underperform in a high-rate environment due to its lack of yield.
While the SEC’s approval of spot ETFs provided regulatory credibility to the crypto industry, SEC Chairman Gary Gensler maintained a cautious stance, referring to crypto assets as “exceptionally risky” investments. The crypto industry has been grappling with a loss of confidence following high-profile bankruptcies and regulatory crackdowns, with ongoing cases against major exchanges Coinbase and Binance.
Bitcoin’s recent decline contrasted with a strong rally in traditional financial markets, particularly U.S. equities. The S&P 500 and the Dow Jones achieved record highs on Monday, driven by a surge in technology stocks ahead of major earnings releases.