Bitcoin Slides $45K in the Face of Fed Hawkishness, but Buying Activity Remains Positive

According to some analysts, institutional use of bitcoin might bolster trust among individuals who previously dismissed cryptocurrencies as a bad investment.

Bitcoin (BTC) fell to its support level of $45,000 on Wednesday morning, despite on-chain statistics indicating continued positive buying activity.
The decline occurred during a global selloff sparked by aggressive remarks from the US Federal Reserve (Fed). Fed Governor Lael Brainard remarked in May that containing inflation was “critical,” implying that the central bank’s balance sheet will be reduced. This resulted in a market sell-off, as investors believed that a restrictive environment would precipitate an economic downturn.

On Tuesday, the S&P 500 finished 1.26 percent lower, while the technology-heavy Nasdaq fell 2.26 percent. This morning, the decline moved to Asia, with Japan’s Nikkei 225 index plummeting 1.48 percent and Hong Kong’s Hang Seng index sliding 1.15 percent.

Weakness in the leading cryptocurrency triggered a larger decline in the cryptocurrency market. ETH, Solana’s SOL, and XRP all plummeted 5% in the last 24 hours, while Avalanche’s AVAX and Polkadot’s DOT both fell over 6%. DOGE, Dogecoin’s cryptocurrency, was the sole gainer among the majors, bolstered by optimism around Elon Musk’s appointment to the board of directors of social media giant Twitter (TWTR), which is being seen as a favourable omen for the memecoin.

Bitcoin’s decline comes less than a week after it reached three-month highs of $48,000. For the second time this week, it dipped to $44,500 – a level that has witnessed buying activity – a break of which might result in a loss to $43,000.

 

Bitcoin inflows continue to increase

Even though price movement remained unpredictable over the last two weeks, buying activity on bitcoin continues to increase on institutional demand, analytics firm Glassnode noted in a note this week.

“Investor inflows into wrapped WBTC, Canadian ETFs, and general investor accumulation on-chain have been historically significant, particularly following the 22-January local price lows,” the paper stated.

Cryptocurrency exchanges reported large cryptocurrency withdrawals, with bitcoin reporting monthly outflows of roughly 96,000 bitcoin. This action indicated that “historically strong buildup” was occurring, Glassnode stated.

In Canada, Bitcoin ETF products saw sustained inflows, with total holdings climbing by 6,594 bitcoin – more than $300 million at current levels – since January 2022, according to Glassnode. Canadian exchange-traded funds now have 69,052 bitcoin.

ETFs, or exchange-traded funds, are a sort of pooled investment vehicle similar to stocks in that they may be exchanged on exchanges without investors owning the underlying asset. According to others, ETF demand was fueled by political tensions in Eastern Europe, particularly the continuing Russia-Ukraine conflict.

“The increase in influx is evidence of increased confidence in Bitcoin’s capabilities,” Alexander Mamasidikov, co-founder of digital bank MinePlex, wrote in a Telegram message. “The continued rise of Canadian ETF products demonstrates how popular bitcoin ETFs can be, and the favourable outlook is certain to attract additional investor capital into the digital currency, assisting in maintaining price stability or charting a mild growth path in the near future.”

Others argue that bitcoin demand will continue to grow as genuine products such as exchange-traded funds (ETFs) acquire prominence.

“Having an ETF with Bitcoin as its underlying asset would undoubtedly increase investor confidence,” Claudiu Minea, co-founder of blockchain crowdfunding platform SeedOn, told CoinDesk in an email. “This might have a beneficial effect on the most sceptic investors, who may have previously dismissed cryptocurrencies as a poor investment.”

“Many publicly traded firms, such as Microstrategy or Tesla, already have a sizable Bitcoin portfolio, while others are considering expanding their holdings to include cryptocurrency,” Minea continued.

 

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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