(Kitco News) – Cryptocurrency prices took another leg down in early trading on Wednesday as the post-halving pullback deepened, exacerbated by mounting economic headwinds and concerns that stubborn inflation could lead to an interest rate hike.
Conditions across all markets started to improve in the afternoon after Federal Reserve Chair Jerome Powell announced that interest rates would remain unchanged. The fate of future rate cuts remains uncertain, however, as “there has been a lack of further progress towards the committee’s 2% inflation objective,” Fed officials said in a policy statement.
MN Trading founder Michaël van de Poppe noted that while headlines focused on the interest rate decision, one comment from Powell points to a positive future for cryptos and risk assets.
Key note from Powell:
Pace of QT is slowing down in June, after earlier today a treasury buyback operation was announced, first time since 2002.
It's time to buy #Bitcoin and #Altcoins.— Michaël van de Poppe (@CryptoMichNL) May 1, 2024
Traders appear to have gotten the message. After trading in the red throughout the morning, stocks climbed into the green following the interest rate announcement from Powell, only to pull back again into the market close.
At the closing bell, the S&P and Nasdaq finished in the red, down 0.34% and 0.33%, respectively, while the Dow gained 0.23%.
The brief surge was accompanied by a sell-off in the DXY, which fell from 106.475 to a low of 105.71, while the U.S. 10-year Treasury yield plunged more than 228 BSP at one point, and traded at 4.637% at the time of writing.
Data provided by TradingView shows that Bitcoin fell 7% in early trading on Wednesday, declining from $60,775 to a low of $56,500, where it consolidated in the lead-up to the interest rate announcement.
BTC/USD Chart by TradingView
Following Powell’s presser, BTC’s price also pumped and dumped, and at the time of writing, trades at $57,400, a decrease of 4.23% on the 24-hour chart.
Macroeconomic pressures limit the upside
“As macroeconomic pressures persist, bearish momentum has intensified, pushing Bitcoin beneath the critical $60,000 support level,” said analysts at Secure Digital Markets. “Bitcoin has tumbled to $56,700, breaking below the $57,000 mark for the first time since February 28, and logging its first monthly decline since August.”
“This 16% plunge is the steepest since November 2022, during the FTX collapse,” they noted. “Immediate support now hovers between $50,000 and $53,000. With expectations for fewer rate cuts and continuous withdrawals from US BTC ETFs, the crypto market is showing signs of fatigue.”
With the Fed holding interest rates steady, the analysts said “the anticipation of a prolonged journey towards rate reductions has unsettled the markets further.”
This, combined with spot BTC ETF outflows experiencing significant outflow – “totaling $161.6 million, marking the fifth consecutive week of net withdrawals, amounting to $635 million” – have led to weakness in Bitcoin, they noted.
“Altcoins, especially those recently outperforming categories like AI tokens and meme coins, have suffered notable losses,” they added. Stocks have also suffered, with “The S&P 500 and Nasdaq both registering over 4% losses in April, while the Dow recorded a 5% drop, marking its poorest monthly performance since September 2022.”
“Current futures market odds suggest a roughly 50% probability of a rate cut by September, with expectations set for a modest quarter-percentage-point cut by the end of 2024,” they concluded.
For the newer crypto holders – who got their first exposure to Bitcoin via the ETFs – if this pullback felt a little more intense than previous ones, it was, as Rekt Capital noted that “This is officially the deepest retrace in the cycle (-23.6%).”
But market analyst Miles helped add some perspective, saying this correction doesn’t mean much in the grand scheme of things as a parabolic rise is on the horizon.
In the grand scheme of things, this correction does not mean much.
The macro chart says parabolic is coming. $BTC pic.twitter.com/IiW3BpmUm2— Miles (@JohalMiles) May 1, 2024
Altcoins bounce back despite hawkish Fed
Altcoins climbed higher in the afternoon despite the hawkish comments from Powell, with roughly a quarter of the tokens in the top 200 recording losses while the rest saw gains.
Daily cryptocurrency market performance. Source: Coin360
ZetaChain (ZETA) led the gainers for a second day, increasing 14.9%, followed by an 11.3% gain for Optimism (OP), and a 10.6% climb for Polkadot (DOT). Radix (XRD) was the biggest loser, falling 9.7%, while Arweave (AR) declined by 9.3%, and Golem (GLM) lost 7.1%.
The overall cryptocurrency market cap now stands at $2.15 trillion, and Bitcoin’s dominance rate is 52.3%.
