Factors contributing to the decline include excessive leverage, negative BTC ETF inflows, and market overbuying.
BTC experienced its largest single-day (UTC) percentage decline since November 2022, falling over 8% on Tuesday.
Probably, ETF outflows stimulated the decline.
The price correction of Bitcoin (BTC) gained momentum on Tuesday due to the decline in popularity of U.S.-listed spot exchange-traded funds (ETFs).
As of below $62,000, the dominant cryptocurrency by market value fell more than 8%, according to data from the charting platform TradingView. Since November 9, 2022, this is the most significant single-day percentage (UTC) decline.
Prices plummeted more than 14% on that day when Sam Bankman Fried’s FTX exchange, which had been the third largest, declared bankruptcy. The daily performance cited herein denotes the percentage increase or decrease over 24 hours, from midnight UTC to 23:59:59 UTC.
Since last week’s record highs of over $73,500 were surpassed, prices have decreased by 15%.
Multiple factors, including outflows from spot ETFs, have contributed to the most recent decline in Bitcoin’s value, according to trader and economist Alex Kruger.
Impact of ETF Outflows on BTC’s Price Correction
According to preliminary data released by investment firm Farside, the spot ETFs experienced their largest-ever net outflow of $326 million on Tuesday. The ETF at Grayscale experienced an unprecedented discharge of $643 million on Monday.
“Prioritized causes of the collapse are as follows: #1 Excessive leverage (funding concerns). #2 ETH is driving the market south (the market determined that the ETF would fail). #3 Negative BTC ETF inflows (data is T+1; exercise caution). ” #4 Solana shitcoin hysteria (it escalated excessively),” Kruger stated on X.
Following last week’s Dencun upgrade, Ether (ETH), the second-largest cryptocurrency by market value, crested at approximately $4,000. It has since fallen to $3,130.
A factor contributing to the decline has been the decreasing likelihood that the U.S. SEC will approve an ether spot ETF by May.
In addition, at the beginning of this month, the cryptocurrency market appeared to be overbought, as long-term traders paid annualized funding above 100% to maintain bullish perpetual futures wagers.
A bullish side that has accumulated such an excessive amount of leverage frequently foretells price corrections.
Investors will now intently monitor the Federal Reserve’s rate decision on Wednesday, which a press conference by Chairman Jerome Powell will follow.
“The Fed’s rate decision is scheduled for next week, followed by Powell’s press conference. This will provide insight into whether the Federal Reserve still anticipates implementing rate reductions this year.
“The Fed’s hawkish stance persists despite little opposition due to the robust economy and inflation that exceeds expectations,” Greg Magadini, director of derivatives at Amberdata, explained.
Recent increases in U.S. Treasury and dollar yields, fueled by persistent producer and consumer price indices, have diminished the appeal of risky assets such as cryptocurrencies and other emerging technologies.