Why Is Bitcoin Price Down Today?

Bitcoin (BTC) price has seen a gradual decline in its bullish momentum to hit a new monthly low of $16,736 on December 3rd.

The move follows a market-wide decline that has already set BTC capitulation records in the wake of the FTX-induced contagion.

Shares started the day slightly higher after losing nearly 1,000 points since the start of the week. To date, the Bitcoin price remains closely correlated to stocks, and stock market investors have concerns about the policy discussions that will take place at the next Federal Open Market Committee (FOMC) meeting on December 13.

While some analysts believe that Bitcoin’s bottom is near, others believe that more downside is on the way due to BTC’s close correlation to the DXY and stocks.

Let’s examine the main reasons why the Bitcoin price is down today.

On-chain data cites historic “peak realized losses”

The Bitcoin price is reacting to a nearly year-long downtrend and the recent stress caused by FTX’s bankruptcy. The latest price drop came just as analysts predicted a bottom in the market had been found.

Data from Glassnode shows that Bitcoin reached a record low level in realized profit-to-loss ratio.

While this data may suggest that Bitcoin price recovery is possible, the overall market may continue to compound these losses. In general, these large losses can remove some units from the market altogether, preventing recovery.

Rising interest rates in the US and abroad are weighing on the Bitcoin price

Based on the Consumer Price Index Report, inflation in the United States increased by 0.4% in October compared to the previous month. Inflation has been a decisive factor in raising interest rates.

The Consumer Price Index report – the most widely followed barometer of inflationary pressures in the US – climbed 7.7% in October compared to the same month a year ago.

With the upcoming CPI reporting event on December 13, Bitcoin may continue to see volatility as the overall market reacts to the numbers.

FTX contagion led to deleveraging and reduced liquidity in the crypto market

Over the past two weeks, balance sheet documents and other leaked spreadsheets have highlighted the high degree of intermingling that occurred between market makers such as FTX, Alameda and other major players in the crypto sector.

DCG’s Grayscale Bitcoin Trust currently holds 633,000 BTC, placing it as one of the largest holders of the digital asset. Another Digital Currency Group (DCG) subsidiary, Genesis Trading, has exposure to FTX, and the recent volatility has left an apparent $1 billion hole in their balance sheet. The fact that Genesis is struggling to secure financing, signaling that it may have no choice but to file for bankruptcy, is leading investors to believe another Black Swan event is in the offing.

As market makers and firms struggle to maintain operations, the fallout is seen directly through reduced trading volumes. According to Arcane Research, real spot volume in BTC reached $510 million on November 29, lowest levels not seen since October 2020. It should be noted that the statistics do not include Binance.

Related: Why is the crypto market down today?

Further evidence of a liquidity squeeze in the crypto market came from Blockstream, a top Bitcoin mining company, which raised funding at 70% less than the company’s valuation. This is further proof that the fallout from FTX can continue to ripple through large companies.

SoFi is also under pressure from regulators. The Senate Banking Committee warned the company in a letter on November 21 to comply with banking standards. A response from SoFi is required by December 8. In addition to the letter to SoFi, the Senate Banking Committee sent a letter to Treasury Secretary Janet Yellen to step in and reduce spillovers.

Is There a Chance of Bitcoin Price Reversing?

The short-term uncertainties in the crypto market do not seem to have changed the long-term outlook of institutional investors. According to BNY Mellon CEO Robin Vince, a poll commissioned by the bank found that 91% of institutional investors were interested in investing in tokenized assets in the following years.

Around 40% of them already have cryptocurrency in their portfolios, and about 75% are actively investing in digital assets or considering doing so.

Concerns are high following the FTX meltdown and the large selloff from Bitcoin is reflected by the high realized losses and correlation to the general macro equity environment. With the FOMC coming, further selling to reduce risk is possible.

In the long term, market participants still expect the price of Bitcoin to rise, especially as more banks and financial institutions appear to be turning to digital cash for settlement purposes even amid the chaos.