Bitcoin losses steepen, dangling at $40K before March inflation report

Bitcoin’s losses accelerated on Monday, capping off a week of declines during the cryptocurrency’s annual conference and ahead of the latest inflation reading on Tuesday that is spooking investors.

As of Monday afternoon New York time, BTC is losing ground and currently changing hands below $40,000, having dropped 8.5% in the last five days, worse than the S&P 500 (-3.7%) but closer to the Nasdaq Composite (-7.1%) . Ether (ETH) is down 5.9% and trades just below $3,000 per unit.

“Bitcoin is struggling here as rising rates are leading to a de-risking moment for many traders,” wrote Edward Moya a senior analyst with Oanda in a research note, “With no momentum from the Bitcoin 2022 conference, the focus shifts to inflation and expectations are for a very hot report that will probably be the peak.”

Since cresting its year-to-date high above $48,000, bitcoin has sold off more than 17% yet still holds a 1.8% gain on where it stood a month ago. Ether is down more than 20% year to date, but improved 16% in the last month.

A bitcoin ATM is seen at a stand during the Bitcoin Conference 2022 in Miami Beach, Florida, US April 6, 2022. REUTERS/Marco Bello

Based on the data from crypto derivatives aggregator, Coinglass, and digital asset firm, CoinShares, last week started a correction in the crypto market.

Total liquidations on the short and long side of the Bitcoin derivatives market has steadily increased to $768.54 million in net long positions from Tuesday to Sunday, meaning Bitcoin bulls might have over-invested based on conference expectations.

Additionally, during last week’s conference investors shed $134 million of positions in digital asset funds with 98.5% coming from Bitcoin investment products such as the Bitcoin ETFs $BITO and $BTF (both down more than 13% in the last 5 days), according to a new report from CoinShares. Meanwhile, investment products shorting bitcoin received $2 million.

“We believe that price appreciation the previous week may have prompted investors to take profits last week,” the authors wrote in the report, pointing out that the selling period for Bitcoin investment products alone doesn’t “suggest any significant stress among investors.”

Bitcoin investment products make up 7.6% of Bitcoin’s total volume but overall BTC volumes remain below average as well, the report noted.

Over the weekend, the Luna Foundation Guard (LFG), a nonprofit which manages the reserves for the Terra protocol’s algorithmic stablecoin (UST), added an additional $173 million in BTC to its treasury.

After having made regular BTC purchases over the past several weeks, the organization holds 39,898 BTC ($1.6 billion) but their persistent buying efforts haven’t deterred the sell-off.

The logo of Crypto.com is seen at a stand during the Bitcoin Conference 2022 in Miami Beach, Florida, US April 6, 2022. REUTERS/Marco Bello

The logo of Crypto.com is seen at a stand during the Bitcoin Conference 2022 in Miami Beach, Florida, US April 6, 2022. REUTERS/Marco Bello

According to the crypto analytics firm, Glassnode, the percentage of circulating BTC that have not moved in a year reached its highest level Sunday at 63.7% of the coin’s total issued supply. The figure shows that while long-term investors remain bullish on the asset’s trajectory, its less liquid supply means 36.3% of investors holding Bitcoin are driving the asset’s sell-off.

The latest reading on consumer prices for March is due out on Tuesday, with the White House predicting the inflation reading will be “extraordinarily elevated due to Putin’s price hike,” Press Secretary Jen Psaki said.

In the past five months, bitcoin has sold off an average of 2.36% on the day of US CPI release with January readings proving an outlier, staying flat (0.37%) according to charts from Yahoo.

Most analysts agree that Bitcoin hasn’t proved itself out as an inflation hedge. However, a recent survey from the crypto exchange Gemini indicates that newcomers outside the US might think otherwise. According to the survey, 46% of respondents living in countries where the local currency has experienced high inflation, said “certain cryptocurrencies are a great way to protect against inflation.”

Before today’s performance in the crypto market, Michael Safai, a founding partner with the proprietary crypto trading firm Dexterity Capital, would have considered the latest US inflation reading to have a negligible impact on crypto prices even if the reading shows new highs. Since bitcoin has tumbled to $40,000 he isn’t so sure.

After such a drop “investors wonder whether it’s a blip or a sign of prolonged bearishness to come. Their search for meaning magnifies the impact of news and data, positive or negative,” Safai told Yahoo Finance.

“Investors may take high inflation data as a sign of economic weakness that governments can’t shake off and sell off a bit more strongly than they would have otherwise. They may also choose to ignore it, depending on how Asia reacts to what’s unfolded overnight,” he added.

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David Hollerith covers cryptocurrency for Yahoo Finance. follow him @dshollers.

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