Bitcoin (BTC): What Triggered the Latest Slump Below $30K?

Bitcoin dropped more than 5% on Thursday amidst another bearish wave. That had the world’s largest cryptocurrency losing all latest gains as investors prepare for tighter monetary policy by Fed Reserve. The bearish move within the previous 24 hours saw Bitcoin hitting $29,867. Keep in mind that the currency climbed towards $32K peaks a couple of days ago.

The United States Fed triggered the ongoing plunge as it officially began trimming its $8.9T balance sheet yesterday. That comes as the bank tries to curb the distressing inflation. Such a move catalyzed plummets in most risk assets.

Wednesday’s session also had equity markets tumbling, NASDAQ 100 shedding 0.7%. Janet Yellen of the US Treasury dented the sentiments further as she admitted being wrong about inflation’s transitory. She made the remarks this week.

Fed Fears Deteriorate Bitcoin

The 4 May meeting revealed Fed launching a move to reduce its balance sheet at a $47.5 billion rate per month. That meant bearishness for Bitcoin as it highlighted reduced liquidity conditions within the marketplace, translating to lower inflows into the asset.

The Fed uses balance sheet decrease whenever measures like rate hikes fail to curb inflation. Applying such an approach means the economy is highly vulnerable to inflation. CME Group data shows more than 99% of market players expect the US Fed to increase interest rates by 50 – 75bp during the June meeting. That translates to more downward pressure on Bitcoin.

Bitcoin lost around 40% following the interest rates hike by Fed plus the hot inflation data in April. The US Fed will likely stiffen fiscal policy this year as inflation appears persistent.

Recent Tumble Demolishes Long Positions

Thursday’s fall blindsided investors expecting Bitcoin to surge further during the latest relief rally. Coinglass data indicates about $154 million in Bitcoin positions liquidated within the previous day. Moreover, long positions accounted for 89% of the liquidations.

The broad cryptocurrency market also recorded liquidations due to the plummeting prices. While publishing this article, the overall crypto market capitalization stood at $1.24 trillion, following a 4.60% overnight drop. Analysts believe the market will weaken this month as inflation remains a challenge.