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Bitcoin collapse triggers warning of ‘future problems’ for global markets
(Bloomberg) — Bitcoin’s collapse is piquing interest from investors who see pronounced swings in the digital token as a possible harbinger of broader shifts in risk appetite in global markets.
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The cryptocurrency has lost about 4% over the past two days after a nearly 16% slump in April, the worst monthly decline since Sam Bankman-Fried’s FTX digital asset empire imploded in November 2022. The token is changed hands at $57,462 at 7:12am Thursday in London, around a two-month low.
Some investors explore Bitcoin’s inflections for clues about changes in liquidity dynamics that may affect other assets. The token has slipped in recent weeks as the Federal Reserve has signaled that interest rates will stay higher for longer, a mantra that has tightened financial conditions by boosting Treasury yields and the dollar.
“Bitcoin is our favorite canary,” Charlie Morris, chief investment officer at ByteTree Asset Management, wrote in a note. “It is a warning of future problems in the financial markets, but we can be confident that they will recover sooner or later.”
The largest digital asset hit a record high of nearly $74,000 in mid-March, supported by a wave of inflows into U.S. spot-Bitcoin exchange-traded funds from the likes of BlackRock Inc. and Fidelity Investments.
Demand for the products subsequently waned and markets failed to gain support from this week’s launch of spot Bitcoin and Ether ETFs in Hong Kong.
Net asset value discounts for some US portfolios have widened significantly, highlighting challenges arising from Bitcoin’s volatility. On Wednesday, the group of U.S. spot ETFs suffered its largest daily net outflow on record.
Read more: Record Bitcoin ETF outflows in the US BlackRock, Fidelity Funds
Macro forces
Bitcoin has posted four April declines over the past decade, three of which portended May losses averaging 18%, according to data compiled by Bloomberg.
However, if inflationary pressures ease and markets resume betting on a much more accommodative Fed stance, cryptocurrencies and other speculative investments could find some relief.
Fed Chair Jerome Powell kept hopes alive for a rate cut this year after the central bank concluded its latest meeting on Wednesday. But he also acknowledged that the explosion of inflation has eroded confidence that price pressures are easing.
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“The next three to four months will be less bullish and more risk-oriented, with the market closely monitoring inflation, employment and economic data for any unexpected shocks or to gain confidence on potential rate cuts,” he said Youwei Yang, chief economist and vice president of cryptocurrency miner BIT Mining Ltd.
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