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Bitcoin Tumbles: Sell-Off Ends ETF Inflow Streak, But is the Worst Over?

Bitcoin's price tumbled after strong US jobs data and European political uncertainty raise risk aversion among investors. While our analyst says the sell-off could be overblown, will the Fed and upcoming economic data play nice with Bitcoin?

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Bitcoin has endured a rough week, plummeting $4,000 in a sudden sell-off. Analysts are scrambling to understand the forces behind this price drop and what it might mean for the future of the cryptocurrency.

Data: CoinMarketCap

According to Blockhead's in-house research arm brn, a confluence of three major events triggered the sell-off:

  • Strong US jobs report: Positive data from the US labor market, indicating strong employment numbers and rising wages, has cast doubt on the Federal Reserve's plans to cut interest rates in September. This shift towards a risk-averse environment sent investors scrambling away from volatile assets like Bitcoin.
  • European political jitters: The recent rise of Eurosceptic and far-right parties in the European Parliament elections has injected uncertainty into European politics. This political instability has further heightened risk aversion among investors.
  • End of Bitcoin ETF inflow streak: A record-breaking 19-day streak of net inflows into Bitcoin ETFs screeched to a halt this week, as they saw $65 million in outflows on June 10.

brn points to a recent CFTC report showing that there is a record high amount of short contracts, and that it could be the second leg of a basis trade (hedge-funds buying the Bitcoin ETF while selling the futures position), suggesting that the positive inflows into Bitcoin ETFs is not a great indicator of institutional exposure as it doesn't show what holders do on the options market at the same time.

While Bitcoin's recent price drop is undoubtedly concerning, our analysts believe there's a chance it could be an overreaction. Here's his optimistic outlook:

We feel that this sell-off could be overbearish and that the bad news expected from the FOMC and the release of May CPI are already priced-in. A reassuring CPI number or a dovish stance from the Fed could put Bitcoin on a new upward trend and help it reclaim the $70,000 mark in the following days.

The Bottom Line

The recent Bitcoin sell-off underscores the cryptocurrency's vulnerability to both macro-economic factors and geopolitical developments. However, brn's analysis suggests there's a chance for a swift recovery if upcoming economic data and Fed pronouncements are positive.