Bitcoin experienced a sharp decline in early Asian trading on Tuesday, following the release of positive economic indicators in the United States, which bolstered the dollar to its highest level in over four months.
The flagship cryptocurrency plummeted by more than 4% within a 24-hour period, reaching $65,174 by 09:10 ET (13:10 GMT). This downturn drove Bitcoin‘s price below the stable range observed in the previous week, ranging from $68,000 to $72,000.
The surge in the dollar index, which measures the strength of the U.S. dollar against a basket of major currencies, surpassed the 105 mark for the first time since mid-November. This rise was propelled by unexpected growth in the ISM manufacturing Purchasing Managers’ Index (PMI) for March.
According to the report, factory activity saw its first increase since September 2022, rising 2.5 points to 50.3 from February’s 47.8, marking an end to 16 months of contraction. This unexpected expansion challenges the likelihood of immediate Federal Reserve rate cuts.
Critical components such as new orders also experienced growth, while the prices index witnessed a significant increase to 55.8% from 52.5%.
Following the release of this report, market expectations for Federal Reserve rate cuts have been adjusted. Swap contracts now predict less than 65 basis points in reductions for the year, down from previous projections. Consequently, the likelihood of a Fed rate cut in June has decreased to below 50%.
The strengthening dollar typically renders assets priced in dollars, such as Bitcoin and gold, more expensive and less attractive, potentially dampening demand. Moreover, a persistently strong dollar can prompt global financial tightening, reducing investors’ appetite for risk assets.
“This (dollar) strength is an extension of the move seen late last week when the Federal Reserve’s Christopher Waller delivered a less dovish speech,” commented Chris Turner, head of global markets at ING.
The decline in Bitcoin prices sparked broader market declines, affecting crypto altcoins like Ethereum, Solana, and Dogecoin, which saw even sharper declines.
“I am not surprised to see increased Bitcoin volatility as we approach the halving of Bitcoin emissions later in April. There was significant volatility as well when we approached the expected approval of Bitcoin ETF back in January,” remarked Ken Timsit, Cronos Labs Managing Director, to Investing.com.
Specifically, ether and Cardano’s ADA each slid more than 5% over the past 24 hours, while Solana’s SOL and Dogecoin tumbled over 7.8% and 10%, respectively.
The broader crypto market experienced significant liquidations, with over $400 million in long positions being liquidated compared to $85 million in short positions.
Kristian Haralampiev, Structured Products Lead at Nexo, attributed today’s pullback to profit-taking from holders.
“Cashing in at the top of the market has to be among every investor’s goals,” he remarked.
Haralampiev also noted increased volumes to exchanges from holders, particularly short-term holders in profit, according to Glassnode’s data.
“While the pullback may be at odds with the common expectation for Bitcoin to simply rip right through all-time highs, it’s also an excellent opportunity for market entry for late bulls before the bitcoin halving,” he added.
However, Haralampiev cautioned against ruling out a deeper pullback in Bitcoin price, pointing to the put/call ratio favoring puts, suggesting openness in the options market to the concept of further decline.
