Bitcoin Crash: Why Is BTC Price Falling So Rapidly?

Bitcoin price has been bearish for several reasons, contributing to the recent downturn. The digital currency has recently touched a one-month low, signaling a broader retreat across global markets. The backdrop of economic uncertainties in major economies, particularly the US and China, has exacerbated the decline, with investors increasingly cautious about the potential for a deeper fall.

Bitcoin Crash: Why Is BTC Price Falling?

Several factors are driving the sharp decline in BTC prices, such as the anticipated Federal Reserve rate cut in the US. Additionally, a fall in the S&P 500 which has historically affected crypto markets, adds to the downturn.

More so, the Bank of Japan’s hawkish stance and substantial outflows from Bitcoin ETFs are fueling bearish sentiment. Market volatility is further amplified by declining active addresses suggesting increased uncertainty.

1. Anticipated Federal Reserve rate cut

Bitcoin’s recent downturn has been influenced by the anticipated Federal Reserve rate cut in the United States, which, contrary to expectations, may not boost the crypto’s price. Traditionally, lower interest rates make riskier assets like cryptocurrencies more appealing, but the current economic indicators suggest otherwise.

This anticipated policy adjustment adds complexity and could further heighten the crypto’s price fluctuations. Market dynamics, however, could shift if macroeconomic conditions improve.

However, September has been highlighted as a traditionally volatile month for BTC, now compounded by the expected Federal Reserve rate cut on September 18.

A recent note from Bitfinex analysts predicts that BTC price could see a 15-20% decline following the rate cut, potentially bringing the BTC price down to a range between $40,000 and $50,000.

2. Impact of S&P 500 Fall on BTC

In addition, the correlation between BTC and traditional financial markets like the S&P 500 has been notably strong. Notably, significant stock indices’ downturns often precipitate BTC price falls. 

On Tuesday, the S&P 500 dropped by 2%, leading to a ripple effect across the financial markets. This recent fall has significantly impacted the crypto market, correlating with a drop in BTC value.

Additionally, the downturn triggered a surge in BTC liquidations, compounding the bearish sentiment among investors. Analyst Ali Martinez pointed out that if the price falls below $56,840, approximately $246.64 million in leveraged positions could be liquidated.

Further analysis show that if the trend continues, BTC Price could fall to February lows, intensifying the selling pressure and increasing market volatility.

3. Bank of Japan Governor Signals Interest Rate Hikes

Concurrently, Bitcoin price and the broader crypto market risk a potential crash as Bank of Japan (BOJ) Governor Kazuo Ueda reaffirmed the likelihood of a rate hike in the coming months. The BOJ’s hawkish stance, combined with rising Japanese yen carry trades, could lead to significant market volatility.

If the interest rate gap between the US Federal Reserve and the BOJ remains wide, it may attract more investors to yen carry trades, which historically have caused major sell-offs in traditional and crypto markets, reminiscent of the Black Monday crash.

4. BTC ETFs Record Enormous Outflows

Moreover, Bitcoin ETFs have witnessed substantial outflows, marking a stark reversal from the inflows seen earlier in the year. These ETFs recorded a significant net outflow of $287.8 million on Tuesday. The outflows suggest a growing reluctance among institutional investors to place their funds in BTC-linked products amidst the current crypto market crash. 

Additionally, there has been a decline in Bitcoin active addresses, contributing to the uncertainty surrounding its price direction. This metric, which typically signals robust market activity, has fallen sharply, correlating with a broader downturn in market value. 

Concurrently, Bitcoin price fell to a one-month low, dropping below $55,000 after initially spiking due to unexpected U.S. employment data. The disappointing job figures led to volatile trading, with BTC dipping to $54,854 as the market reacted to the weaker-than-expected nonfarm payroll numbers.

More so, following a decline in crypto market sentiment to ‘extreme fear,’ analysts predict a potential Bitcoin price correction below $50,000. The Crypto Fear & Greed Index has hit a one-month low, mirroring concerns of a September downturn, historically Bitcoin’s most bearish month.

At the time of writing, BTC price stands at $54,270, reflecting a 3.71% decline over the past 24 hours. The downturn coincides with a substantial 3.72% decline in market cap to $1.07T.