On Monday, the cryptocurrency market, led by Bitcoin, witnessed a downturn as investor sentiment turned bearish due to several factors, including concerns about rising U.S. interest rates and regulatory changes impacting collateralization rules.
Bitcoin, the premier cryptocurrency, experienced a 2.5% decline over the past 24 hours, falling to $62,314.6 by 01:37 ET (05:37 GMT). This drop pushed Bitcoin closer to the lower boundary of its trading range, which has been established between $60,000 and $70,000 since mid-March.
The decision by the Depository Trust&Clearing Corporation (DTCC) to revoke collateral for exchange-traded funds and other investment vehicles with exposure to Bitcoin and cryptocurrencies added to the downward pressure on the market. Effective from April 30, this move diminished the attractiveness of cryptocurrencies, which are often utilized as speculative assets by investors.
In addition to the DTCC’s decision, fears of sustained increases in U.S. interest rates contributed to the negative sentiment surrounding Bitcoin. Cryptocurrencies typically perform well in a low-interest-rate environment, but concerns about prolonged rate hikes weighed on investor confidence.
The release of hotter-than-expected Personal Consumption Expenditures (PCE) price index data, the Federal Reserve’s preferred measure of inflation, further intensified pressure on the crypto market. Persistent inflation has been a significant factor preventing the Fed from considering interest rate cuts, as demonstrated by recent inflation readings.
Market focus has now shifted to the upcoming Federal Reserve meeting for more clarity on interest rate policies. While the central bank is widely expected to maintain its current rates, investors are eagerly awaiting any signals regarding future rate adjustments. Analysts generally believe that the Fed may not entertain rate cuts until September or the fourth quarter of the year.
The negative sentiment surrounding Bitcoin spilled over to other major cryptocurrencies, including Ethereum, XRP, and Solana, which also experienced losses. Ethereum, the second-largest cryptocurrency by market capitalization, dropped 3.4% to $3,202.01, while XRP and Solana lost 3% and 4.5%, respectively.
Despite gains in technology stocks, which followed stronger-than-expected earnings from U.S. tech giants such as Microsoft Corporation and Google parent Alphabet Inc, cryptocurrencies failed to benefit from this positive momentum. The correlation between cryptocurrency prices and tech stocks has weakened in recent months, with risk-off sentiment in the tech sector triggering extended declines in the cryptocurrency market.