30s Summary

Bitcoin dropped 5.3% on October 9 and 10 amid fears the US Federal Reserve may cease lowering interest rates after reports of high inflation in the US. The dip in the cryptocurrency’s value comes as jobless claims in the US surged, reaching a 14-month peak amid recession concerns. Bitcoin traders pulled funds from US spot Bitcoin ETFs for two consecutive days, and the cryptocurrency’s value took another hit following claims the US Securities and Exchange Commission (SEC) sued market maker Cumberland DRW for alleged unregistered crypto transactions.

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Between October 9 and 10, Bitcoin dropped 5.3% to a three-week low of $58,900. This dip seems to be tied to the recent report from the United States showing higher-than-expected inflation rates, scaring traders into thinking that the Federal Reserve might stop slashing interest rates.

This Bitcoin slump represents investors’ concern over a potential recession. The idea of a slowing economy, with prices still climbing, called “stagflation”, worries investors, as this runs counter to the central bank’s mission to boost growth while managing inflation.

Around the same time, jobless claims in the US hit a 14-month peak. First-time applicants for unemployment help surprisingly shot up, with a seasonally adjusted 258,000 people by October 5. A worker strike at Boeing is partly to blame, but overall negative impact on the economy remains a big worry for lawmakers.

Now, no one can say for sure if Bitcoin’s value will drop if the Federal Reserve has to tighten up its monetary policy, but investors are scared that a hot economy could push the stock market into a slump. In the end, this brings down traders’ spirit, especially as the S&P 500 and Bitcoin have a high price correlation of 88%.

Against this backdrop, it makes sense that Bitcoin traders would be less hopeful about near-future prices, especially after two straight days of funds being pulled from the US spot Bitcoin ETFs. As per data from Farside Investors, these vehicles experienced net outflows of $59 million between October 8 and 9, going against the trend of the previous two trading days.

Bitcoin’s falling trend sped up even more after news broke that the US Securities and Exchange Commission sued market maker Cumberland DRW, alleging it worked as an “unregistered dealer” in crypto transactions. They claim the Chicago-based firm profited from crypto asset sales, comparing them to commodity sales.

Despite whether these allegations hold up in court, traders often seek safety in times of fear and uncertainty. When Bitcoin fell below $59,000, its primary metrics displayed weakness, pointing to less demand for leveraged buying.

The amount of money flowing out of Bitcoin could be short-lived and might just be down to a few large entities unexpectedly shutting down their leveraged long positions. In simple terms, this means that traders using derivatives, or financial contracts, aren’t betting on Bitcoin prices to decrease anytime soon.

Source: Cointelegraph