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The sudden drop in Bitcoin prices has triggered the liquidation of long futures contracts worth $121 million. Although Bitcoin prices stabilized at around $35800 on November 15th, investors are still weighing the potential factors behind this downturn.
US inflation and government shutdown affect Bitcoin prices
Part of the reason driving this trend is the unexpected decline in US inflation data on November 14th. The US Consumer Price Index (CPI) rose by 3.2% in October compared to 2022, leading to a decrease in US short-term bond yields.
This has triggered the purchase of traditional assets, which may reduce the demand for alternative hedging tools such as Bitcoin. If the Federal Reserve's strategy to curb inflation is successful and does not trigger an economic recession, then Bitcoin may lose some of its appeal as a hedging tool.
Even if Moody's, the rating agency, downgraded the US credit outlook from stable to negative on November 11th, it did not have a favorable impact compared to Bitcoin and other alternative hedging tools. On the contrary, investors seek refuge in short-term 5.25% fixed income instruments, which explains why despite rising debt levels and global economic challenges, gold prices still struggle to break through $2000.
China's retail sales data for October showed a growth of 7.6%, marking the fastest growth rate since May. However, this obvious recovery masks potential problems, especially with a 9.3% decline in real estate investment in the first 10 months of this year. China's economic stimulus measures, including policy support and liquidity injection, have only brought limited benefits.
Given that China is the world's second-largest economy, the economic situation in the country may lead investors to take a cautious stance towards riskier assets such as the special currency, especially in the broader global economic context. In addition, recent political developments surrounding the threat of a US government shutdown may also affect Bitcoin's performance.
On November 14th, the US House of Representatives passed a bill requiring the government to remain open during holidays, temporarily avoiding the financial crisis. However, this measure has laid the groundwork for potential spending disputes next year, including a provision to comprehensively reduce federal spending by 1% by 2024 if an agreement is not reached.
Expectation and regulatory supervision of Bitcoin spot ETFs
The cryptocurrency market has had a negative reaction to BlackRock's forged XRPETF application.
Although the incident was not directly related to Bitcoin, it sparked regulatory scrutiny of the cryptocurrency industry during a sensitive period when multiple Bitcoin ETF spot applications were awaiting review by the US Securities and Exchange Commission (SEC). Therefore, regardless of the parties involved, the results have had a truly positive impact on the cryptocurrency market.
On November 13th, Bloomberg ETF analyst James Seyfart emphasized that Bitcoin ETF spot will not be approved until January. This statement is issued amidst the growing market expectations for these decisions. The United States Securities and Exchange Commission (SEC) is about to make a decision from November 17th to 21st.
Growing concerns about global economic recession
Essentially, the decline in Bitcoin prices after reaching $37000 cannot be caused by a single event. Considering the market value of Bitcoin at $725 billion, investors may have reassessed their positions. In contrast, Berkshire Hathaway is a large company with a valuation of $760 billion last year and a profit of $76.7 billion.
Bitcoin's strict monetary policy ensures scarcity and predictability, but large multinational corporations can use profits to repurchase their own stocks, effectively reducing available supply significantly. In addition, during economic downturns, these trillion dollar companies can leverage their strong balance sheets to acquire competitors or expand their market value.
Ultimately, the challenge of Bitcoin maintaining its momentum above $37000 is influenced by factors such as data supporting the Federal Reserve's economic soft landing strategy and growing concerns about global economic leaders. These factors continue to create an unfavorable background for the value of the Bitcoin, especially if the US Securities and Exchange Commission delays its decision on BTC spot ETFs according to market expectations.
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