Since the beginning of 2023, the price of Bitcoin has quadrupled and reached a near-historic high of almost $74,000 in March of this year. This is largely attributed to the demand for Exchange-Traded Funds (ETFs) in the United States. However, with a decrease in ETF inflows, the recent upward trend has slowed down. At the same time, some altcoins have experienced declines of over 10%. The total market value of cryptocurrencies has dropped to below $3 trillion. According to CoinGecko data, among the top 20 altcoins by market cap, Shiba Inu and Avalanche have been hit the hardest recently, followed by Uniswap (UNI) and Dogecoin, with Solana closely behind. However, there seems to be no particularly clear or intuitive reason to explain this situation, and possible reasons are speculated as follows:
1. Macroeconomic Environment and Monetary Policy
Continued Fed Rate Hikes: In 2024, the Fed continued to implement a tight monetary policy to address inflationary pressures. A high-interest rate environment is unfavorable for risk assets, including cryptocurrencies. According to CME Group data, in the first half of 2024, the Fed raised interest rates multiple times, causing funds to shift from high-risk assets to safer risk-free assets such as U.S. Treasury bonds.
2. Regulatory Pressure
Increased U.S. Regulatory Pressure: In 2024, the SEC further intensified its regulatory efforts in the cryptocurrency market, launching investigations into several major exchanges and their operations. For example, in January, the SEC took more stringent legal action against Binance and Coinbase, accusing them of engaging in unregistered securities trading, leading to increased market uncertainty and diminished investor confidence.
Global Regulatory Tightening: In addition to the U.S., other countries have also increased their regulatory efforts in the cryptocurrency market. The European Union implemented stricter regulations on crypto assets in 2024 under the Markets in Crypto-Assets (MiCA) framework, requiring cryptocurrency projects to adhere to higher compliance standards. The implementation of these policies has led to increased operational costs and compliance risks for many projects.
3. Market Liquidity
Slowing ETF Inflows: Despite a rebound in Bitcoin at the beginning of 2024 due to ETF demand, the decrease in ETF inflows has also slowed the upward momentum of Bitcoin prices. According to CoinShares data, there was a significant reduction in fund inflows for cryptocurrency funds in the second quarter of 2024, reflecting waning interest from institutional investors.
Decreasing Market Depth: In 2024, the market depth of Bitcoin and other major cryptocurrencies continued to decline. Data from Kaiko shows a significant decrease in market order book depth, leading to more pronounced price fluctuations during negative market sentiment.
4. Technical Factors
Critical Support Levels Breached: In 2024, technical analysis shows that Bitcoin breached critical support levels multiple times, prompting further bearish sentiment in the market. For example, in March, Bitcoin dropped below the key 200-day moving average, leading to increased market panic and exacerbating selling pressure.
5. Negative News and Market Confidence
Impact of Negative News: In 2024, several prominent cryptocurrency projects and exchanges were hit with negative news. For example, in January, Binance faced investigations for alleged illicit activities and money laundering in multiple countries, while FTX’s bankruptcy liquidation process also raised concerns about improper asset disposal. These negative news stories further eroded market confidence.
Low Market Sentiment: According to the Crypto Fear & Greed Index from Alternative.me, market sentiment in 2024 has remained in a “fear” state for an extended period. This indicates a lack of confidence among investors in the market outlook, with a greater inclination to sell assets to mitigate risk.
Of course, in addition to the possible reasons mentioned above, some industry experts have expressed their own thoughts. Henrik Anderrson, Chief Investment Officer of asset management company Apollo Crypto, stated, “The recent decline in interest in spot Bitcoin ETFs may be a factor contributing to the market downturn. As far as I can see, there is no clear catalyst, but it seems that the negative flow of BTC ETFs has led to weakness in altcoins, triggering liquidations of leveraged long positions in Bitcoin, Ethereum, and Dogecoin.” Digital asset company 10xResearch has linked the recent collapse of altcoins to the decline in spot Bitcoin ETF flows over the past week, but believes the relationship between the two is actually the opposite. “While the inflation data has been soft, the failure of Bitcoin to rebound is surprising, but the collapse of Ethereum and altcoins may have been foreseeable.”
Despite the volatility and challenges experienced by Bitcoin and the cryptocurrency market in the first half of 2024, the market continues to demonstrate resilience and attraction. From changes in ETF inflows to increased global regulatory pressures, various factors are collectively influencing market trends. Investors are facing a more complex and dynamic environment, requiring careful assessment of risks and opportunities. Technical analysis and market sentiment indicators suggest that the market may still face volatility and uncertainty, but in the long run, the potential for development in the cryptocurrency space remains significant. Over time, the market may find a new equilibrium and gradually regain stability.
