Bitcoin's (BTC 3.16%) token price is continuing to slide and dipped below the $95,000 mark in Friday's trading. While the token has since rebounded above that level, its recent trading has been marked by bearish volatility. As of this writing, the cryptocurrency is down roughly 6% over the last week and 23% from the lifetime high of more than $126,000 reached in October.
What's behind the recent selling action? Read on for a look at two key factors that have been stifling bullish momentum for the market-leading cryptocurrency and dragging its valuation lower.
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1. Macroeconomic uncertainty
With inflation generally trending down this year and signs that the U.S. economy is slowing, investors have been hoping that the Federal Reserve would continue on its course of cutting interest rates. Lower interest rates typically result in stronger performance for Bitcoin and other cryptocurrencies -- and expectations that the Fed will continue reducing the country's benchmark rate have played a driving role in bullish momentum in the category. Unfortunately, hopes for another cut when the central banking authority's Federal Open Market Committee (FOMC) meets again next month have recently been tempered.
At the Fed's late-October meeting, chair Jerome Powell cautioned that another rate cut in December was not a foregone conclusion -- and subsequent developments have added to concerns that a reduction may not arrive. Due to the federal government shutdown, some crucial data tracking inflation and unemployment trends was not compiled and is unlikely to be published. That means that the Fed is flying blind to a certain extent and members of the FOMC may be less inclined to vote for a rate cut.
CRYPTO: BTC
Key Data Points
Even if a cut does arrive, investors are showing signs of concern about the bigger macroeconomic picture. While lower rates typically spur bullish momentum for cryptocurrencies and stocks, this dynamic does not exist in a vacuum. With layoffs accelerating recently and other sources of uncertainty along macroeconomic and geopolitical lines, investors have broadly become more risk-averse even if the likelihood for multiple rate cuts over the next year still seems high.
2. Institutional support is wavering amid broader risk-off trends
While Bitcoin was once frequently touted as the underpinning of a parallel economy or a shelter from macroeconomic volatility, the cryptocurrency has become increasingly integrated into the financial system as adoption has surged. Support from institutional investors has played a huge role in the token's gains over the last five years, but this also means that the cryptocurrency now tends to see trading that tracks relatively closely with momentum for the stock market.
Rising fears that valuations for artificial intelligence (AI) may be in a bubble have led to big sell-offs for many companies in the category and spurred sell-offs across the broader market. The move away from high-risk, growth-dependent investments has had spillover effects for Bitcoin and the broader cryptocurrency market. So while Bitcoin doesn't have a direct connection to AI or much direct exposure to its growth trajectory, there's a good chance that valuation trends in the category will continue to have an impact on its token price.
