Bitcoin falls below $ 40,000; What was the cause?

The price of Bitcoin fell below $ 40,000 again after a few weeks of fluctuations. The crash comes as the US government recently warned that last month’s inflation rate, which will be released this afternoon, may be too high.

To Report Bitcoin Desk, the price of Bitcoin this morning fell below $ 40,000 for the first time since March 16 (March 25) and reached $ 39,200 at its lowest daily level. The price has dropped by about 5.5 percent in the last 24 hours, and at the time of writing, each bitcoin is trading at $ 39,990.

The significant drop comes as a majority of investors in international markets are assessing the risk of rising US bank interest rates, rising global inflation and the restructuring of international trade following Russia’s invasion of Ukraine.

Armando Aguilar, director of research at the Ledn Institute, said the main reason for investors’ fears these days was macroeconomic factors.

The administration of US President Joe Biden warned yesterday that the US inflation report for March, which is due to be released today, could show a sharp rise in inflation. This could prompt the US Federal Reserve to raise interest rates more rapidly; Because inflation in the United States has already reached its peak in the last four decades and is somehow out of control.

The New York Digital Investment Institute (NYDIG) said in a new report that “fears of rising bank interest rates and contractionary monetary policy in the United States remain a major issue for bitcoin investors.”

The bitcoin market, which has recently become unusually correlated with the US stock market, is naturally affected by the US Federal Reserve’s plan to cut $ 95 billion a month from its $ 9 trillion balance sheet.

The central bank’s move to reduce its assets is in stark contrast to the policies adopted in 2020 and 2021 with the aim of developing traditional markets, growing the economy and improving the state of the country’s financial system; A policy that quadrupled the price of bitcoin in 2020 and jumped 59 percent in 2021.

Lucas Outumuro, a senior fellow at IntoTheBlock, said traders are now looking at the risk of a shrinking balance sheet and a contraction in the US Federal Reserve’s monetary policy, which is being implemented simultaneously with several interest rate hikes. The rate is set to rise 0.5 percent at each stage, while the US Federal Reserve has raised bank interest rates by just 0.25 percent at each stage in recent economic cycles.

Overall, Otamuro said, this could reduce the price of high-risk assets and increase the correlation between the price performance of digital currencies and stocks.