Although Bitcoin reached an all-time high of nearly $74,000 on Thursday, it saw a 9% drop to $66,885 on Friday. The drop could be attributed to cryptocurrency traders selling off some of their holdings to capitalize on the significant 175% price surge over the past year, a practice known as profit-taking.
City Index analyst Matt Simpson explained to Sky News that Bitcoin tends to exhibit volatility and sharp corrections after hitting record highs, and the current drop may be influenced by the Federal Reserve’s less dovish stance than anticipated.
Analysts speaking to Coindesk shared a similar view, suggesting that the rapid increase in Bitcoin’s price may have outpaced accurate market valuation, leading to the current correction. Greta Yuan, Head of Research at VDX, a Hong Kong-licensed exchange, highlighted this point.
Anticipating the Bitcoin Halving Event
Adding complexity to the situation is the upcoming Bitcoin “halving,” scheduled for April and occurring every four years. During this event, the number of newly minted Bitcoins entering the market will be halved permanently, with only 450 BTC per day entering circulation.
The halving event serves to regulate Bitcoin’s fixed supply and inflation rate over time, contributing to its value through increasing scarcity. Despite this, past halving events have not definitively caused price surges, contributing to the current uncertainty in the market.
Additionally, the approval of spot Bitcoin exchange-traded funds (ETFs) in the United States has garnered substantial capital inflows, particularly to the largest ETF managed by BlackRock, which received $15.5 billion within two months of its launch.
Adrian Wang, founder and CEO of Metalpha, expressed concerns in an interview with Coindesk regarding the trading volume of Blackrock’s Bitcoin ETF, fearing a potential flash crash due to rapid price surges. Furthermore, the SEC’s postponement of a critical regulatory decision on Bitcoin ETF options trading has added to the market’s uncertainty.
The unpredictable nature of the market, combined with Bitcoin’s historical volatility, makes fluctuations like the recent drop during Asia trading on Friday expected, particularly in the lead-up to the impending halving event.
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