Bitcoin's price recently experienced a significant decline, hitting $56,556 in Europe on Wednesday morning. This is the lowest point since late February and marks the sharpest monthly drop since November 2022.
Within the last 24 hours alone, Bitcoin has fallen by approximately 7.5%, breaching the previously stable $60,000 support.
What's more, this happened around the time of the FED interest rate decision, which caused a pessimistic feeling and a sudden drop within hours.
Now, let's look into three main reasons driving this price drop and Bitcoin current trend.
Market Response to FOMC Meeting
Financial circles are buzzing with anticipation as the Federal Open Market Committee (FOMC) gears up to declare its interest rate decision.
The market, especially Bitcoin, has become more responsive to macroeconomic signals, and sluggish GDP growth and persistent inflation have decreased expectations of the Federal Reserve cutting interest rates.
This change in sentiment is happening as inflation data continues to rise, challenging the Federal Reserve's stance and potentially leading Fed Chairman Jerome Powell to take a more cautious approach.
Ted from TalkingMacro analyzed the situation in a post, saying, "Bitcoin and other risk assets are currently feeling pressure from a stagflationary environment, geopolitical tensions, and seasonal liquidity variations."
Furthermore, initial expectations of up to seven rate cuts by the end of 2024 have dramatically shifted, with the market now pricing in only one potential cut by December 2024.
This change comes amid rising inflation data that are challenging the Federal Reserve's stance and potentially leading Fed Chairman Jerome Powell to take a more cautious approach.
"For the first time in recent memory, the market is calling the Fed’s bluff, quickly front-running the idea that the Fed may not cut at all in 2024," Ted stated.
Natural Correction Phase in Bitcoin's Cycle
Following a strong rally since the start of the year, Bitcoin might just be undergoing a natural correction phase.
Charles Edwards, founder of Capriole Investments, noted just before the Bitcoin price drop: “We are a day short of breaking the record set in 2011 for days without a meaningful dip [-25%],” underlining the high recent performance.
However, Scott Melker, known as “The Wolf Of All Streets” On X (Formally Twitter), took to his handle to highlight technical indicators showing an impending correction, "Broke and retested range lows as resistance. […] My biggest concern, which I have been discussing for months [was] that RSI never made the trip to oversold. We are almost there now; all lower time frames are oversold. This is still ONLY a 23% correction, which is very shallow for a bull market and consistent with other corrections on this run. We have yet to see a 30-40% pullback during this bull market, like in the past."
Profit-Taking by Traditional Finance Investors
Investors and traditional finance markets are seizing the opportunity to take profits following substantial gains.
A post by crypto analyst RunnerXBT on X explains this; here are his words: "TradFi/Boomers are taking profits: CME Open Interest is decreasing rapidly, April 29th 135.6k coins, April 30th 123.9k coins, topped around 170.4k coins (March 20th),".
A wider strategy for taking profits is being supported by this trend. This is particularly relevant after significant events like ETF approvals and the anticipation of Bitcoin halving.
“That, at least for me, confirms my thesis that a lot of these guys longed in October 2023 because of ETF approval and BTC halving. The trade played out, and now they are taking profits (yes, they are still up a lot) because they longed BTC, not dead altcoins,” he further stated.