Analyzing the Factors Behind the Recent Price Decline of Bitcoin and Ethereum

Cryptonews John Brightwater September 5, 2024

Analyzing the Factors Behind the Recent Price Decline of Bitcoin and Ethereum

Bitcoin (BTC) and Ethereum (ETH) have commenced September with notable declines, continuing a downward trend that began earlier in the month. This negative sentiment surrounding these leading cryptocurrencies, and indeed the broader cryptocurrency market, can be attributed to several overarching macroeconomic factors.

One significant factor is the residual impact of the recent yen carry trade. The yen appreciated against the US dollar, indicating that investors have been divesting from riskier assets, including Bitcoin and Ethereum, to rectify their carry trade positions which relied on the low-yielding yen. Renowned hedge fund manager James Lavish commented on social media platform X (formerly Twitter) that the implications of the yen carry trade are still evident. He highlighted that the Nikkei 225 Index experienced a decline of 3.7%, alongside a decrease in the USD/Yen trading pair.

Moreover, the Bank of Japan (BOJ), under the leadership of Governor Kazuo Ueda, has articulated a hawkish outlook, suggesting that interest rates will continue to rise if economic conditions and pricing metrics maintain their current trajectory. This statement has incited apprehension among traders, prompting them to liquidate their carry trade positions further, resulting in additional downward pressure on Bitcoin and Ethereum.

These cryptocurrencies faced significant losses during the market crash on August 5, which was triggered by the BOJ’s decision to raise interest rates for the second time since 2007. Bitcoin’s value plunged below $50,000 while Ethereum fell to approximately $2,200. Given that the effects of the yen carry trade persist coupled with indications of further rate hikes by the BOJ, Bitcoin and Ethereum remain susceptible to additional price decreases.

Additionally, the correlation of Bitcoin and Ethereum with the US stock market has compounded their price decline since the beginning of September. On September 3, the stock market collectively witnessed a staggering loss of over $1.05 trillion, which instigated fear within the cryptocurrency market, leading to a sell-off of Bitcoin and Ethereum. This trend was substantiated by data from Farside investors, which revealed that Spot Bitcoin ETFs and Spot Ethereum ETFs experienced net outflows of $287.8 million and $47.4 million, respectively, on that day.

As the outlook for Bitcoin and Ethereum remains bearish, there exists an urgent demand for favorable market events that could reinvigorate bullish momentum within the cryptocurrency sector. Members of the crypto community are particularly hopeful that the upcoming meeting of the US Federal Reserve’s Federal Open Market Committee (FOMC) on September 17-18 may yield a decision to lower interest rates. Such an action could potentially alleviate some market pressures and inject essential liquidity into Bitcoin and Ethereum.

As of the time of writing, Bitcoin is trading at approximately $57,160, while Ethereum is valued at around $2,400, according to data sourced from CoinMarketCap. The future behavior of these cryptocurrencies will largely depend on the unfolding economic conditions and the response of market participants along with macroeconomic developments.