Hodl or Fold? Bitcoin Faces Perfect Storm of Challenges

Bitcoin has been on a downward spiral for the past four trading days. This slump comes in stark contrast to the recent record highs seen in the global stock market.

The digital currency plunged as much as 8.1%, reaching its lowest point since February. As of Friday lunchtime in Singapore, a single Bitcoin was trading around $54,190. Other major cryptocurrencies like Ether, XRP, and Cardano fared even worse, with some losses exceeding 10%.

So, what's causing the jitters in the crypto world? Several factors are at play.

• Cooling Demand for Bitcoin ETFs: The initial excitement surrounding US Bitcoin exchange-traded funds (ETFs) seems to be fading. These investment vehicles were supposed to attract new investors, but the inflows haven't been as strong as anticipated. This has put downward pressure on Bitcoin's price.

• Mt. Gox Woes Resurface: The long-defunct Mt. Gox exchange, infamous for a massive Bitcoin hack years ago, is returning a huge amount of the stolen cryptocurrency to creditors. The big question is: how much of this $8 billion windfall will be sold? The uncertainty surrounding this is spooking investors. To make matters worse, a Mt. Gox-linked wallet recently moved a significant amount of Bitcoin, further fueling anxieties.

• Crypto De-correlated from Stocks? Interestingly, while Bitcoin is struggling, global stocks are hovering near all-time highs. The short-term correlation between Bitcoin and the stock market seems to be weakening. This raises a crucial question: is the risk aversion in crypto an isolated phenomenon, or could it foreshadow a more cautious period for traditional investments as well?

• Crypto Investors Eyeing Dovish Fed: According to analysts, the crypto market is yearning for a more dovish stance on interest rates from the US Federal Reserve. In simpler terms, crypto investors are hoping for the Fed to cut interest rates or expand its balance sheet. Lower interest rates are generally seen as positive for riskier assets like Bitcoin.

• US Jobs Data in Focus: Investors are eagerly awaiting the release of US jobs data later today. This data will provide clues about the future direction of Fed policy. Recent economic reports have been weaker than expected, increasing the chances of the Fed easing monetary policy in the coming months.

• Liquidation Frenzy: The crypto market has witnessed a surge in liquidations over the past three days, with over $800 million worth of bullish bets being forced to sell. This is one of the biggest liquidation events since April and is further contributing to the price decline.

• Bitcoin Miners Feeling the Pinch: The operators who maintain the Bitcoin network through powerful computers are still grappling with the financial impact of the "halving" event that happened in April. This event halved the amount of new Bitcoin awarded to miners for their work. As a result, some miners are being forced to sell their Bitcoin holdings to stay afloat. The price point of $51,000-$52,000 is particularly crucial for these miners, as it represents their break-even point for profitable mining.

Will Bitcoin Bounce Back? Only time will tell. But one thing's for sure: the next few days will be crucial for the world's most famous cryptocurrency.