Bitcoin and cryptocurrency prices have plummeted since the beginning of June, wiping $300 billion from the aggregate crypto market (even as the market prepares for a $4 trillion “watershed” ). .
Bitcoin prices have fallen back from more than $70,000 per bitcoin earlier this month as traders scrambled to adjust following a dire warning about Federal Reserve interest rates by Treasury Secretary Janet Yellen .
Now, as a bitcoin and crypto legend bets on China’s massive pivot, analysts at the world’s largest asset manager BlackRock have warned an “unprecedented” scenario is unfolding that could impact bitcoin prices and the cryptocurrency market.
“We see central banks being forced to keep interest rates higher than before the pandemic to address persistent inflationary pressures,” analysts at BlackRock, which helped fuel this year’s bitcoin price boom by spearheading a bitcoin spot exchange-traded fund (ETF) revolution on Wall Street, wrote in a report.
“The new macro regime is marked by higher inflation, higher rates and lower growth due to supply constraints. We see this unprecedented macro mix persisting. Aging populations, the reconfiguration of global supply chains and the low-carbon transition are constraining production and driving capital investment as the economy tries to adapt.”
Last week, the Federal Reserve kept interest rates unchanged and signaled that it would cut just once in 2024 and more in 2025. At the start of 2024, markets were pricing in as many as seven rate cuts this year.
The Fed has been under pressure to cut interest rates after raising them to record levels following massive Covid-era stimulus spending and money printing that sent inflation spiraling out of control.
Last week, three Democratic lawmakers, led by influential Massachusetts senator Elizabeth Warren, urged the Fed to cut interest rates and abandon its 2% inflation target.
“We write today to urge the Federal Reserve to reduce the federal funds rate from its two-decade high of 5.5%,” the senators wrote in a letter to Fed Chairman Jerome Powell. “This prolonged period of high interest rates has slowed the economy and has failed to address the remaining major causes of inflation.”
Meanwhile, bitcoin prices have also come under pressure from so-called bitcoin miners — who maintain the network in exchange for newly minted bitcoins — selling their bitcoins to pay bills following the bitcoin supply halving in April that cut block rewards from 6.25 bitcoins to 3.125 bitcoins.
“The recent bitcoin price drop was also influenced by high selling volumes from miners,” Matteo Greco, research analyst at fintech and crypto investor Fineqia, said in an emailed note.
“This event forced miners to optimize their capital efficiency to maintain profitability, initially causing profits to drop significantly due to the reward halving from one block to the next. Additionally, the hash rate of the bitcoin network has been growing strongly over the past few years and only decreased by 4% after the halving. This shows the intense competition in the mining sector, with businesses forced to find different revenue streams to maintain profitability and optimize capital efficiency.”
