The Unexpected Decline of Bitcoin Below $65,000: Unveiling the Causes
The recent decline of Bitcoin’s value to below $65,000 was unexpected, with underlying causes remaining quite obscure and pinpointing the exact reason being a complex task. However, we might have some insights.
In recent times, cryptocurrency hedge funds have entirely abandoned Bitcoin. Over the past twenty trading days, these funds have reduced their exposure to the BTC market to just 0.37. This marks the lowest level since October 2020. Graphs illustrate Bitcoin’s price trends from 2019 to 2024, highlighting notable peaks and troughs.
The reduced exposure of hedge funds to Bitcoin presents a significant reason for the recent sharp drop in the cryptocurrency’s value. The lower chart demonstrates the one-month extended beta of global cryptocurrency hedge funds versus Bitcoin, indicating how hedge fund performance is influenced by Bitcoin’s price fluctuations.
A beta value of one signifies equal exposure, while a beta less than one indicates reduced exposure. The drop to a beta of 0.37 suggests that hedge funds are less susceptible to Bitcoin price changes than they were a few years ago.
Hedge fund exposure was last at this low point in October 2020, preceding a notable rise in Bitcoin’s value. Hedge funds are known for their calculated actions and often have access to the latest data and industry insights. Their withdrawal may suggest expectations of further declines or volatility.
Several reasons could explain this cautious approach, such as shifts in internal investment strategies, macroeconomic conditions, or regulatory uncertainties. With lower exposure, there is likely to be more selling pressure on Bitcoin, pushing the price below the critical $65,000 level.
Given that hedge funds often control substantial capital, they have a significant impact on the market. Market sentiment and price movements heavily influence the flow of funds.
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