Blame it on seasonality, dwindling interest or traders away on holiday, but Bitcoin is ending on a down note for a second consecutive month even with one of the most potentially positive developments for cryptocurrencies in awhile.
The world’s largest digital asset had been mired in a tight trading range for months until a steep drop in the middle of August dragged the price of Bitcoin below $26,000. Traders chalked it up in part to bond yields climbing to the highest in more than a decade at that time.
Since then, Bitcoin has struggled to regain its footing. Not even the aftermath of a court ruling that appears to pave the way for a long-sought US exchange-traded fund that invests directly in Bitcoin. After jumping 6% on Tuesday on the ruling, Bitcoin is down for a second day at around $26,300, bringing the monthly drop to about 10%.
Enthusiasm for crypto has dissipated after a scandal-ridden 2022 that led to the collapse of several major participants. The waning interest can be seen in areas such as perpetual futures, one of the most popular derivatives contracts in crypto markets. Open interest, or the total number of outstanding contracts it the lowest in more than a year. Even Google searches for Bitcoin, or cryptocurrency in general, have hit five-year lows.
“Just about every metric you could imagine from a trading perspective is lower,” said Stephane Ouellette, chief executive of FRNT Financial Inc, an institutional platform focused on digital assets. Beyond a handful of larger players and miners, trading he said is at “incredibly depressed levels.” He added that this is especially pronounced in North America.
On Tuesday, Grayscale Investments LLC won what some industry observers are calling a watershed victory when a US appeals panel overturned the SEC’s rejection of a plan to convert its Bitcoin trust to an ETF. Advocates have long said that an ETF could result in a gush of retail cash.
“It has been a painfully quiet month for the cryptocurrency but this week has been the exception,” said Fiona Cincotta, senior market analyst at City Index. “The Grayscale news has provided a short-term boost but with regulators still keen to tame the wild west of the financial world, this story could be more drawn out.”
After a first-half surge of around 80%, Bitcoin is down around 13% in July and August. It had tumbled 64% last year and still trades at less than half the all-time high of around $69,000 in late 2021.
The grind higher in global yields comes as resilient economic data challenges the view that central banks rates are peaking. Higher interest rates generally lessen the appeal of alternative investments such as cryptocurrencies. Still, crypto advocates remain unbroken.
“All bull runs are driven by new money coming into a market,” said Noelle Acheson, author of the “Crypto Is Macro Now” newsletter. “In the case of crypto, where is that new money going to come from? Not crypto investors, they’re already involved. It’ll come from macro funds, who for now have their hands full figuring out why stock valuations have been inhaling helium and just how much higher can bond yields go.”
--With assistance from Vildana Hajric and Muyao Shen.