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November 15, 2023

Analyzing the Factors Behind Bitcoin's Struggle to Break the $37K Barrier


Bitcoin, the leading cryptocurrency, has been the center of attention in recent days due to its price fluctuations. After a promising surge above the $37,000 mark between November 10 and 12, Bitcoin's value encountered an unexpected correction, dropping back to around $35,000 on November 13. This abrupt shift in the market triggered the liquidation of approximately $121 million worth of long futures contracts. As Bitcoin's price seemingly stabilized around $35,800 on November 14, investors are left wondering about the underlying factors contributing to this downturn.

U.S. Inflation and Government Shutdown Impact

One pivotal factor behind this market movement was the unexpected softening of inflation data in the United States on November 14. The U.S. Consumer Price Index (CPI) indicated a 3.2% increase in October compared to the previous year, causing yields on U.S. short-term Treasurys to decline. This, in turn, led to increased interest in traditional assets, potentially reducing the demand for alternative hedge instruments like Bitcoin. If the Federal Reserve's strategy to effectively combat inflation without triggering a recession proves successful, Bitcoin may lose some of its appeal as a hedge against economic uncertainties.

Even the decision by Moody's rating agency to downgrade the U.S. credit outlook from stable to negative on November 11 did not favorably impact Bitcoin and other alternative hedge assets. Instead, investors turned to short-term 5.25% fixed-income instruments, leading to challenges for gold in surpassing the $2,000 mark, despite the rising debt levels and global economic challenges. The ongoing uncertainty surrounding U.S. government shutdown threats also added to the complexity of Bitcoin's performance in this context.

China's Economic Challenges

In China, retail sales data for October showed a 7.6% increase, marking the fastest growth rate since May. However, beneath this apparent economic recovery lies hidden issues, most notably a 9.3% decline in property sector investments during the first ten months of the year. Despite China's efforts, including policy support and liquidity injections, to stimulate its economy, the results have been modest at best.

Considering China's position as the world's second-largest economy, its economic situation significantly contributes to investors adopting a cautious stance toward riskier assets like Bitcoin, particularly when viewed within the broader global economic context. Furthermore, recent political developments related to U.S. government shutdown threats have the potential to influence Bitcoin's performance on a global scale.

Regulatory Scrutiny and Spot Bitcoin ETF Expectations

The cryptocurrency market faced a negative reaction following a fraudulent BlackRock XRP trust filing on November 13. Although this event was not directly connected to Bitcoin, it drew regulatory attention to the broader cryptocurrency sector at a time when numerous spot Bitcoin ETF applications are awaiting review by the U.S. Securities and Exchange Commission (SEC). The outcome of these regulatory reviews holds immense significance for the cryptocurrency market as a whole.

Bloomberg ETF analyst James Seyffart emphasized on November 13 that approval for a spot Bitcoin ETF should not be anticipated before January. This statement added to the market's anticipation surrounding upcoming SEC decisions scheduled for November 17 and November 21.

Heightened Fear of a Global Economic Recession

In essence, the drop in Bitcoin's price following its flirtation with the $37,000 level cannot be attributed to a single event. Rather, it suggests that investors may have taken a closer look at their positions, considering Bitcoin's substantial market capitalization of approximately $725 billion. For context, even a major conglomerate like Berkshire Hathaway, with a market capitalization of $760 billion, has posted profits of $76.7 billion in the past year.

While Bitcoin's stringent monetary policy guarantees scarcity and predictability, major global corporations have the capacity to repurchase their own stocks using earnings, effectively reducing the available supply. Furthermore, during economic downturns, these trillion-dollar companies can leverage their robust balance sheets to acquire competitors or expand their market dominance.

In summary, Bitcoin's recent challenges in maintaining momentum above the $37,000 mark have been influenced by a complex web of factors, including U.S. inflation data, concerns about government shutdowns, China's economic situation, regulatory scrutiny, and global economic uncertainties. As these elements continue to create a landscape with inherent challenges for Bitcoin's value, its performance will likely remain closely tied to evolving global economic dynamics.

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