Bitcoin witnessed a decline in price on Wednesday, extending its reversal from a weekend rebound, as ongoing worries about heightened regulatory scrutiny on the cryptocurrency industry tempered investor enthusiasm.
The broader crypto market also faced downward pressure due to uncertainty surrounding U.S. interest rates. Several Federal Reserve officials indicated this week that the central bank was leaning towards maintaining unchanged rates throughout 2024, leading to a rebound in the dollar from recent losses.
As of 08:21 ET (12:21 GMT), Bitcoin had fallen by 1.8% over the past 24 hours to $62,336.7. Despite the drop, the leading cryptocurrency remained firmly within a trading range observed for most of the past two months, with momentum cooling off after reaching a record high in March.
Moreover, recent capital flows data revealed a third consecutive week of significant outflows from crypto investment products, particularly Bitcoin. The excitement surrounding the launch of exchange-traded funds earlier in the year seemed to have waned.
The crypto market sentiment was further dampened by a report suggesting that over 90% of transactions in stablecoins, a crucial component of crypto trading, were non-organic, raising doubts about the actual retail demand for cryptocurrencies. Additionally, concerns were raised about potential regulatory actions against stablecoin operators, notably Tether, the largest among them.
In regulatory matters, trading platform Robinhood Markets Inc (NASDAQ: HOOD) disclosed potential regulatory scrutiny from the Securities and Exchange Commission (SEC) regarding the nature of crypto tokens traded on its platform. The SEC’s ongoing disputes with XRP issuer Ripple and crypto exchange Coinbase over the classification of crypto tokens as securities added to the regulatory uncertainty.
The SEC’s scrutiny extended to Ethereum, the second-largest cryptocurrency, with reports of a potential investigation into its status as a security. The postponement of the decision on approving spot-traded Ethereum ETFs for U.S. markets until July, with expectations leaning towards rejection, further weighed on the market sentiment.
Amidst the regulatory backdrop, broader cryptocurrency prices retreated, facing additional pressure from the strengthening dollar following indications of unchanged interest rates by the Federal Reserve. Ethereum dropped by 2.5% to $2,996.41, while Solana and XRP saw declines of 6.1% and 2.7%, respectively.
The uncertainty surrounding U.S. interest rates, particularly the possibility of higher rates for a longer period, posed challenges for the crypto markets, traditionally thriving in a low-rate, high-liquidity environment.
On a positive note, a report highlighted a volatility risk premium (VRP) indicator suggesting a relatively stable market environment ahead, potentially appealing to long-term investors. The VRP, measuring the disparity between an asset’s option-implied volatility and realized volatility over time, significantly narrowed following Bitcoin’s mining reward halving on April 20, indicating a shift towards a more stable and predictable market environment post-halving.
Analysts interpreted the reduced VRP as a sign of decreased uncertainty, with market participants anticipating more stable conditions ahead.
