Bloomberg: What caused the crypto market sell-off

Author: Sunil Jagtiani, Sidhartha Shukla, Bloomberg; Compiler: Deng Tong, Golden Finance

Bitcoin hit its lowest point in a month as outflows from digital asset investment products and the prospect of long-term higher U.S. borrowing costs weakened the cryptocurrency market.

On Tuesday, the largest digital asset fell as much as 2.7% to levels not seen since mid-May, before paring losses to trade at $65,740 at 1:20 p.m. Singapore time. Smaller tokens such as Ethereum, Solana and Dogecoin also fell.

Withdrawals from digital asset products totaled about $600 million last week, the highest level since March, according to CoinShares International Ltd. Persistent inflation has led traders to reduce their expectations for the Federal Reserve to cut interest rates this year, posing a challenge for speculative investments such as cryptocurrencies.

Stocks and bonds have delivered higher returns than bitcoin this quarter, a reversal from the three months to March, when digital assets significantly outperformed traditional markets.

“Cryptocurrencies are increasingly vulnerable to macro triggers,” BTC Markets Pty CEO Caroline Bowler said, while adding that she remained optimistic in the long term.

Demand Weakens in Crypto Markets

Signs of weakening demand are showing across cryptocurrency markets, including new coins. The ZK token launched by a much-touted ethereum blockchain project fell by a third after listing on Monday, the latest in a series of highly anticipated tokens that have been hit by a sharp sell-off.

In South Korea, a local report said new regulations coming next month could force exchanges to reduce the number of tokens available to investors. The country is an engine of demand for small-cap digital assets, so-called altcoins, and the report may have spooked some traders.

Bitcoin prices have risen fivefold since the start of 2023 and hit an all-time high of $73,798 in March, helped by demand for dedicated U.S. exchange-traded funds. The rally has cooled recently as ETF inflows have slowed.