Introduction
Bitcoin and other cryptocurrencies experienced a decline on Monday as risk-sensitive assets faced a wider slump. The digital assets are bracing for potential macroeconomic catalysts that could impact their future performance.
Bitcoin Price Drops Near Key Level
Over the past 24 hours, the price of Bitcoin has fallen by 2% and dropped below $26,100. This decline puts Bitcoin close to the important $26,000 level, which has acted as a support level for the leading digital asset over the past month. Bitcoin's struggle to maintain recent gains after surpassing $27,000 last week is concerning for investors.
Low Trading Volumes and Volatility
Cryptocurrencies are currently experiencing historically low trading volumes and volatility. This signifies diminished investor interest in the market known for its wild price fluctuations. Traders are eagerly awaiting a decision from the Securities and Exchange Commission (SEC) regarding spot Bitcoin exchange-traded funds, but it could take several months before any significant developments occur.
Macro Catalysts Impacting Bitcoin
Similar to the Dow Jones Industrial Average and S&P 500, Bitcoin's performance is influenced by macroeconomic factors. These factors have the potential to shift the outlook for interest rates, which are currently at generational highs. When interest rates on risk-free assets or government debt increase, investors are less incentivized to engage in riskier investments such as Bitcoin. Consequently, the key question revolves around whether the Federal Reserve will raise interest rates in November or consider lowering them.
The Importance of Economic Data
Economic data plays a crucial role in determining the Fed's stance on interest rates. Strong indicators of a robust U.S. economy are unlikely to push the central bank into lowering rates. However, any signs of weakness may prompt a more accommodative approach from the Fed. Investors will closely monitor the release of several economic indicators this week. These include the Dallas Fed manufacturing activity data for September, the Chicago Fed national activity index for August, revisions to U.S. gross domestic product over the past five years on Thursday, and the Fed's preferred inflation measure—the personal-consumption expenditures index—due Friday.
Altcoins Follow Bitcoin's Lead
Apart from Bitcoin, Ethereum (Ether), the second-largest cryptocurrency, experienced a 1.5% decline, reaching $1,575. Smaller tokens, commonly referred to as altcoins, also displayed weakness. Cardano dropped 1%, and Polygon slipped 2%. Additionally, memecoins such as Dogecoin and Shiba Inu also witnessed declines of 2% and 1%, respectively.
