Bitcoin Set for First Monthly Loss in 6 Months Amidst Shifts in Interest Rate Bets and Reduced Liquidity Wave
Bitcoin (BTC) has seen a decline this month, making it the first monthly loss since December. Against ether (ETH), bitcoin is set for a monthly decline of nearly 7%. Although BTC has regained some value since last Thursday, trading near $27,800 at press time, it remains down about 5% for the month.
The renewed hawkish Federal Reserve (Fed) bets have given a boost to the U.S. dollar this month, lifting the greenback by 2.7% against a basket of fiat currencies. As a result, interest rate traders no longer expect the Fed funds rate to fall to 4.5% or lower by the end of 2023 from the current 5%. This shift has caused capital to leave the crypto market since early last year, with the stablecoin market capitalization shrinking to a 20-month low of $130 billion.
Markus Thielen, head of research and strategy at crypto services provider Matrixport, suggests that "the liquidity wave of lower inflation has now run its course and the market needs a new driver and theme to lift prices higher." While the tech sector tends to be correlated with BTC, the AI and chat GPT revolution has not yet benefited BTC.
Bitcoin has decoupled from Wall Street's technology-heavy index Nasdaq, which has risen nearly 8% this month. Griffin Ardern, a volatility trader from crypto asset management firm Blofin, says that the continued high-interest rate environment will keep the odds against bitcoin bulls. In a high-interest rate environment, high risk-free returns such as money market funds are more attractive to investors, meaning the lack of liquidity in the crypto market continues.
Dick Lo, the founder and CEO of quant-driven crypto trading firm TDX, believes that bitcoin's rise on Sunday was a relief rally triggered by U.S. leaders' announcement of a provision deal to lift the $31.4 trillion debt limit hit in January. However, further gains may be hard to come by as the market will likely return its focus to the possibility of another 25 basis points interest rate hike at the June FOMC meeting.
Overall, shifting interest rate bets and a reduced liquidity wave have impacted BTC's value this month. It remains to be seen how these factors will continue to impact the crypto market in the coming months.