Hawkish “dot plot” hits crypto market hard! Bitcoin price hits one-month low

The trading price of Bitcoin, the world’s largest cryptocurrency by market value, hit its lowest point in a month. The main logic may be that the outflow of funds from digital asset investment products has accelerated, and the prospect of rising long-term borrowing costs set by the Federal Reserve has weakened the overall valuation of the cryptocurrency market. On Tuesday, the price of Bitcoin, the largest cryptocurrency by market value, fell nearly 3% to the level in mid-May, and then narrowed its decline to hover around $65,740. The prices of smaller cryptocurrencies such as Ethereum, Solana and Dogecoin fell to varying degrees.

This round of long-term digital asset prosperity that began in 2023 now seems to be gradually withdrawing, and some analysts are skeptical about the prospects for capital inflows into cryptocurrency-related assets such as Bitcoin ETFs. The latest data from CoinShares International Ltd. shows that investors withdrew as much as $600 million from cryptocurrency-related products such as Bitcoin ETFs last week, the largest withdrawal figure since March.

Overall, the stubborn and sticky inflation rate in the United States has led traders to lower their expectations for the Fed’s rate cuts this year, and the expectations for the Fed’s long-term “neutral interest rate” have tended to rise. The long-term upward borrowing cost poses a huge threat to the investment prospects of speculative nature such as cryptocurrencies, and may put pressure on the valuation of cryptocurrencies in the long term.

The median of the latest interest rate “dot plot” released by the Federal Reserve currently shows that most Fed officials expect only one rate cut in 2024, which is two less than the forecast of the dot plot in March, a total reduction of 50 basis points.

In addition, as the expectation of rate cuts this year has significantly subsided, Fed officials have simultaneously raised the policy interest rate path for 2025. They have slightly raised the median of their expectations for interest rates at the end of 2025 from 3.9% to 4.1%, and at the same time raised the median of their expectations for long-term policy interest rates from 2.6% to 2.8%, which also means that most Fed officials are more aware of the reality that the “neutral interest rate” is rising.

Traditional assets such as stocks and bonds have fared better than bitcoin this quarter, a sharp reversal from the three months to March, when a wide range of crypto assets, including bitcoin, significantly outperformed traditional assets such as stocks and bonds.

“Cryptocurrencies such as bitcoin are increasingly vulnerable to macro factors such as expectations for the Federal Reserve’s interest rate,” said Caroline Bowler, CEO of BTC Markets Pty, adding that she remains optimistic about the long-term investment prospects of cryptocurrencies.

Rare setback for new listings

There are clear signs of declining investor appetite and risk appetite across the crypto market, including demand for new cryptocurrencies. ZK tokens from a highly touted project built on the Ethereum blockchain plunged by a third after listing on Monday, the latest in a series of highly anticipated cryptocurrency issuances that were met with a sharp sell-off, a rare occurrence for newly listed cryptocurrencies.

In South Korea, new securities trading regulations due next month could force crypto exchanges to reduce the number of cryptocurrencies available for investors to trade, a local report suggests. South Korea has long been a core engine of demand for small crypto assets, so-called altcoins, and the report may have spooked some crypto traders, prompting them to sell off some of the less popular crypto assets.

But it is worth noting that since the beginning of 2023, the price of Bitcoin has quadrupled, hitting an all-time high of $73,798 in March this year. With the help of the huge amount of funds brought by Bitcoin ETFs, not only the total market value of Bitcoin, the world’s largest cryptocurrency, has continued to grow, but the market value of many relatively small cryptocurrencies such as Ethereum has also continued to expand since this year.

Bitcoin and many other cryptocurrencies such as Ethereum have continued their 2023 rally this year, and their collective surge has surpassed 2023, mainly due to the explosive demand for the first batch of Bitcoin ETF products listed in the United States. However, as the scale of ETF fund inflows has slowed significantly in recent days, Bitcoin prices have cooled recently, and smaller cryptocurrencies such as Ethereum have also seen a downward price adjustment trend.