Market Overview

Bitcoin prices have slumped, falling below the $100,000 mark, driven by a wave of risk aversion that has pulled nearly $900 million out of Bitcoin funds. This reflects growing investor concerns about the risks surrounding cryptocurrencies.

Impact of Bitcoin ETF Outflows

Bitcoin Exchange Traded Funds (ETFs) experienced significant outflows, with net redemptions reaching approximately $870 million on Thursday, marking the second-largest single-day outflow since the launch of these funds. This outflow indicates a decline in confidence in Bitcoin as an investment asset.

Market Dynamics and Macroeconomic Influences

Earlier in the week, US stocks saw a brief rally fueled by the end of the government shutdown, but this rally was short-lived. Traders are closely monitoring economic data to determine whether there is justification for the Federal Reserve to cut interest rates in the near future. This ongoing reassessment is adding new pressure to riskier assets.

Expert Opinions

Max Gokhman, deputy chief investment officer for investment solutions at Franklin Templeton, points out that the current sell-off is highly correlated with other risk assets. However, given the volatility of cryptocurrencies, the decline is more pronounced. Gokhman adds that this correlation between cryptocurrencies and macroeconomic risks will persist until institutions become more deeply involved in the cryptocurrency market, moving beyond a focus on Bitcoin and Ethereum.

Decreased Market Liquidity

Data from Kaiko reveals a significant decrease in market liquidity, with the ability to absorb large trades without significantly impacting prices down by approximately 30% from its high this year. This decrease in liquidity exacerbates price volatility.

Technical Outlook and Market Analysis

According to Augustine Fan of SignalPlus, Bitcoin has turned bearish since President Trump took office, and the overall market capitalization of cryptocurrencies has declined. Fan suggests that technical support for Bitcoin is limited between current levels and $90,000, and that market sentiment may remain negative until new positive news emerges.

Increased Bets on Volatility

Nick Ruck of LVRG Research indicates that options market traders are increasingly betting on volatility, with rising demand for neutral strategies such as straddles and strangles.

Risk Warning: this article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform.When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients. 

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