On Tuesday, the Bitcoin (BTC) price lost over 5% in a sudden price drop. There was also a bloodbath in the cryptocurrency market as it triggered a wave of liquidations for leveraged investors and raised concerns about the stability of stablecoins.
Bitcoin price experienced a sharp decline
According to TradingView data, Bitcoin price dropped from $69,450 to $65,970 in 30 minutes. This sharp decline resulted in the liquidation of over $165 million in leveraged positions across various exchanges, according to Coinglass. Bitcoin longs (bets that the price will rise) took the brunt of the losses, losing over $50 million. Ethereum (ETH) longs also suffered significant losses with over $40 million in liquidity.
This price surge coincided with a net outflow of $86 million from Bitcoin exchange-traded funds (ETFs). The outflows broke a four-day streak of positive entries. While BlackRock’s iShares Bitcoin ETF emerged as the only bright spot with a net inflow of $165.9 million, Grayscale’s GBTC, the world’s largest Bitcoin trust, witnessed a massive outflow of $302 million, dragging the overall net figure down.
Did the price change in Tether affect the prices?
The wobble in Tether (USDT), a major stablecoin pegged to the US dollar, also contributed to market uneasiness. Data from CoinGecko and Google Finance showed a temporary deviation from the $1 peg, with USDT briefly dropping to $0.988. However, the reason for this decline remains unclear. It could be a bug in the data tracking APIs or an actual fluctuation in the value of the stablecoin, but the short depeg has not been observed in other price trackers.
The primary culprit behind Bitcoin’s woes appears to be the resurgent US dollar. The dollar index (DXY), which measures the dollar’s strength against a basket of major currencies, surpassed the 105.00 level for the first time since mid-November. This increase in the value of the dollar coincides with positive US economic data. Data released Monday revealed an unexpected rebound in U.S. manufacturing activity in March, as shown by the Institute for Supply Management’s (ISM) manufacturing purchasing manager index (PMI).
US data affects the market
PMI exceeding 50 for the first time since September 2022 pointed to an expansion in the manufacturing sector, weakening the possibility of the US Federal Reserve making aggressive interest rate cuts this year. According to Bloomberg, this change in expectations has reduced the probability of a rate cut in June to below 50%.
A stronger dollar generally makes dollar-denominated assets like Bitcoin and gold less attractive, potentially leading to lower demand. Additionally, continued strengthening of the dollar could lead to global financial tightening, deterring investors from buying riskier assets such as cryptocurrencies.
What’s in store for Bitcoin price in the coming period?
Looking ahead, volatility in Bitcoin prices is likely to continue in the near future, according to experts. Several key employment reports on Friday, including nonfarm payrolls data and the unemployment rate, are expected to impact the market. Additionally, the Bitcoin halving event planned for the end of this month may also lead to additional price fluctuations.
While the recent price drop has caused significant pain for leveraged investors, it remains to be seen whether this is a temporary setback or the beginning of a longer-lasting correction in the cryptocurrency market. The interaction between the strength of the US dollar and upcoming economic data will be crucial in determining Bitcoin’s future trajectory.
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