The bullish momentum that propelled Bitcoin price to a 2023 high over $31,500 on July 6, vanished after investors’ concerns of potential rate hikes resurfaced.
The contraction in Bitcoin price briefly sent BTC below $30,000 and on top of the renewed worries, traders are concerned that Bitcoin miners sending BTC to exchanges could be a sign of an impending sell-off.
Let’s take a closer look at the factors impacting Bitcoin price today.
Will the Federal Reserve restart interest rate hikes?
Despite the Federal Reserve pausing interest rate increases on June 14, Fed chair Jerome Powell seems committed to reducing inflation by restarting rate hikes.
After Powell’s Federal Open Markets Committee (FOMC) speech on June 14, the market seemed to confidently believe that the Fed would begin increasing interest rates again. CME’s FedWatch tool shows the market's belief that such increases are coming at the next FOMC meeting on July 26. As of July 6, the probability of interest rate hikes sits at 92.4%.
Target interest rate probabilities. Source: CME Group
To date, crypto prices are still highly correlated with the Dow and S&P 500 and most major banks still expect the U.S. to experience a sharp recession at some point in 2023.
According to U.S. Bank analysis which incorporates more than 1,000 data points, investor sentiment about the current state of the economy remains low.
“Persistent inflation, elevated interest rates and uncertainty over the pace of earnings growth in 2023 remain headwinds to advancing equity prices. Although the pace of inflation is waning, the Fed is becoming less hawkish and earnings projections have stabilized.”
US-led regulatory pressure against crypto exchanges continues to impact markets
Despite the recent wave of institutional interest in Bitcoin, the actions of U.S. regulators is still seen as unknown. On July 5, Larry Fink, the CEO BlackRock suggested that Bitcoin is digital gold and he briefly spoke about the firm's recent Bitcoin ETF application.
While countries like Hong Kong and the United Arab Emirates are embracing Bitcoin, on June 5 and June 6, the United States Securities and Exchange Commission filed civil lawsuits against two of the largest centralized exchanges in crypto, Binance and Coinbase. The action has led to Binance.US seeing market share drop from 22% to under 1%.
While the SEC has previously noted Bitcoin is not a security, some market analysts are weighing if the current increase in actions is a renewed attempt for the Operation Chokepoint 2.0 initiative which aims to restrict access to all digital currencies.
Coinbase may have a pending lawsuit but ETFs, including BlackRock and Valkyrie are listing Coinbase as their required surveillance partner. Coinbase has filed a lawsuit against the SEC for clarity and the SEC is expected to respond by July 13.
While some commentators are excited about the prospect of Bitcoin ETFs, not all analysts agree that the structure is healthy for Bitcoin price, noting “paper BTC” concerns.
Can Bitcoin price reverse course?
The short-term uncertainty in the crypto market does not appear to have changed institutional investors' long-term outlook. Recently, despite a hostile U.S. regulatory environment, large institutions are pushing for Bitcoin financial instruments which may spark a bull run.
Bitcoin price continues to be directly impacted by macroeconomic events, and it is also likely that further regulatory actions and interest rate hikes will continue having some effect on BTC price.
In the long term, market participants still expect the price of Bitcoin to recover, especially as more financial institutions are seemingly embracing BTC.
