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The cryptocurrency market experienced a notable retreat after Thursday’s trading session, with Bitcoin falling to $100,470—its lowest level since May 8. This marked a 10% decline from its highest point this year. Below, we explore three key reasons behind the recent market downturn.
1. Profit-Taking Among Investors
One of the primary reasons for the pullback in Bitcoin and other altcoins is profit-taking by investors following a recent rally. Bitcoin (BTC) surged approximately 50% from its April low to its May high. Similarly, Ethereum (ETH) doubled in value during the same period. Smaller cryptocurrencies such as Dogwifhat and Fartcoin saw gains exceeding 300%.
It’s common for cryptocurrencies to experience a correction after a strong upward surge. Investors often lock in profits, leading to short-term sell-offs. Ryan Lee, Chief Analyst at Bitget Research, explained:
“After a period of notable gains, many investors are locking in profits, which has triggered short-term sell-offs. This behavior is not unusual in bull cycles, where sharp rallies often lead to a wave of corrections as traders seek to de-risk their portfolios.”
2. Uncertainty Surrounding Federal Reserve Policy
Another factor contributing to the decline in cryptocurrency prices is the growing uncertainty about the Federal Reserve’s monetary policy. While many market participants speculated that the Fed might cut interest rates soon, recent statements from Fed Chair Jerome Powell suggest otherwise. The central bank appears to be taking a cautious approach, closely monitoring inflation and labor market data.
On Friday, economic data revealed that the U.S. economy added 139,000 jobs in May, while the unemployment rate held steady at 4.2%. Additionally, updated inflation data is scheduled for release next Wednesday. Higher-than-expected inflation figures could signal that the Fed may keep interest rates elevated for a longer period, which would likely exert further pressure on crypto prices. On the other hand, lower-than-expected inflation could raise the likelihood of rate cuts, offering potential relief to the market.
3. Geopolitical Tensions
Geopolitical uncertainty has also weighed on the cryptocurrency market. Recent trade tensions between the United States and China have escalated, with the U.S. imposing export restrictions on key technologies and China responding by limiting the supply of rare earth elements critical to various industries.
While U.S. President Trump and Chinese President Xi Jinping held discussions on Thursday, analysts believe these tensions are unlikely to ease in the near term. Historically, cryptocurrencies and equities tend to perform better in periods of geopolitical stability. For example, both markets saw gains in May when tensions temporarily subsided before and after a U.S.-China meeting in Switzerland.
Is Bitcoin Ready for a Recovery?
Despite the recent dip, technical indicators suggest that Bitcoin may be primed for a rebound. The BTC daily chart shows support at the 50-day moving average, with the potential formation of a bullish engulfing pattern. Additionally, Bitcoin appears to be shaping a handle portion of a cup-and-handle pattern, a well-known bullish continuation setup.
The pattern’s upper boundary is near $109,300, while the lower boundary is around $74,387, resulting in a depth of approximately $35,000. Adding this depth to the upper boundary projects a possible price target of $144,000 for Bitcoin. If this scenario unfolds, many altcoins are also likely to recover alongside Bitcoin.
While the market remains volatile, understanding the factors influencing price movements can help investors make informed decisions. As always, it’s essential to conduct thorough research and consider risk management strategies before investing in cryptocurrencies.
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