After hitting its highest point in more than a year last week, Bitcoin is falling back to Earth.
The top cryptocurrency by market cap was down just over 4% on Monday amid a selloff, trading near $41,800, down from a high of about $43,900 on Sunday. Almost $400 million was liquidated over the past 24 hours, according to data from CoinGlass.
Still, the coin maintained well above the key psychological marker of $40,000, pushing some analysts to believe the Monday decline was merely a speed bump on the way to an extended rally. Around $20 million flowed into exchange-traded products tracking Bitcoin last week, bringing year-to-date inflows to $1.7 billion, according to a Monday report by CoinShares.
“A wave of profit-taking hit the cryptocurrency market on Monday morning…we saw a massive exit from long positions in low liquidity before the regular session in Asia. Strong demand for risk assets in traditional markets suggests that the market will try to get back on its previous growth track,” Alex Kuptsikevich, an analyst at broker FxPro, told Barron’s.
A wave of positive sentiment last week pushed Bitcoin above $44,000, its highest level in 20 months. Fueling the boost was a hope that the Securities and Exchange Commission will approve a flurry of spot Bitcoin ETFs in early January. Several TradFi giants, including BlackRock and Fidelity, are waiting to hear on the status of their applications.
This week, traders will scrutinize Federal Reserve Chairman Jerome Powell for any sign that the central bank will cut rates sooner rather than later. Despite a higher-than-expected jobs report last week, inflation has recently moderated to about 3.2% compared with a high of above 9% in June 2022.
Analysts point to cooling inflation numbers as a reason to expect more dovishness from Powell at the last Federal Open Market Committee meeting of the year, on Tuesday and Wednesday.
Although the Fed is not expected to cut rates this week, Goldman Sachs predicts at least two rate cuts next year. Any interest rate cut could be a boon for Bitcoin and the overall crypto market, which in recent weeks has moved above a $1.6 trillion market cap from a sub-$1 trillion market cap earlier this year.
As Bitcoin dropped on Monday, so did altcoins. The second-most popular crypto, Ether, was down 5.5%, and the previously red-hot Solana was down just under 8%. Other popular memecoins like Dogecoin and Shiba Inu, which rode Bitcoin’s coattails to highs last week, were down 5.7% and 7.5%, respectively.