On April 2nd, the cryptocurrency sector witnessed a sharp decline, with the aggregate market capitalization retracting by 5.20% to $2.40 trillion. This reduction marked the steepest 24-hour fall observed in the past three weeks. Bitcoin, the predominant digital currency, accounted for a significant portion of the downturn, plummeting by 5.67% to $65,766. Ethereum, the runner-up in market size, also experienced a 6.68% loss, dropping to roughly $3,271.
Economic Indicators Influence Crypto Market Sentiment
The crypto market’s downturn aligns with the release of robust US manufacturing data that exceeded expectations. Consequently, market participants have recalibrated their projections for the Federal Reserve’s monetary policy, expecting less easing. The Institute for Supply Management unveiled a 2.5% uptick in the manufacturing index on April 1st, representing the first growth recorded since 2022.
In the wake of these statistics, the pricing of swap contracts indicated a reduction in the anticipation of Federal Reserve policy easing, now projected at around 65 basis points for the year. This adjustment, coupled with the forecast that interest rates will persist at elevated levels in the foreseeable future, sparked a surge in the yield of the benchmark 10-year US Treasury bond, escalating from 4.18% to 4.33%.
Investor Behavior Shifts Amid Rising Bond Yields
As bond yields ascend, reflecting investor expectations for higher inflation or interest rate hikes, there is typically a shift toward seeking larger returns, a sign of a robust economy or a more restrictive monetary policy. Such conditions often result in diminished risk tolerance, prompting investors to eschew more speculative investments like cryptocurrencies.
Points to take into account
- Stronger US manufacturing data leads to a bearish outlook for cryptocurrency due to policy tightening speculations.
- The surge in 10-year US Treasury bond yields diminishes investor appetite for risk, impacting cryptocurrency valuations.
- Reduced inflows into US spot Bitcoin ETFs reflect a broader trend of declining investor risk appetite in uncertain markets.
Moreover, the crypto market’s slump coincided with a period marked by diminishing inflows into US spot Bitcoin exchange-traded funds (ETFs), as noted by Farside Investors, with withdrawals totaling $85.7 million on the first of April. This trend underscores the inclination of investors to pivot towards liquidity or more stable investment options in times of market hesitation or bearish sentiment.