After flirting with the $58,000 level on Aug. 7, Bitcoin (BTC) faced a 3% correction in two hours after the Wall Street open, erasing the gains made over the last 24 hours.
Data from Cointelegraph Markets Pro and TradingView shows Bitcoin trading at $56,732 as of 12:00 p.m. ET on Aug. 7 before turning down to trade at $55,670.
Let’s look at the factors driving Bitcoin price down today.
The US dollar’s strong recovery
The US Dollar Index (DXY), a metric that tracks the greenback’s performance against top world currencies, has risen 0.95% from its Aug. 5 low of 101.78 to the current value of 102.74 following the Bank of Japan’s (BOJ) decision to hold back on near-term rate hikes.
The Bank of Japan’s deputy governor, Shinichi Uchida, said on Aug. 7 that BoJ will not hike interest rates when markets are unstable, playing down the chance of a near-term hike in borrowing costs. Uchida’s remarks boosted Japan’s Nikkei share average and sent the yen sharply lower.
The Japanese Yen, sinking over 1.5% against the US dollar, is the biggest contributor to the DXY recovery.
On the economic front, there is a very light day ahead, which could benefit the DXY’s recovery. Late on Aug. 7, the US Consumer Credit Change data for June will be released, with expectations for a drop to $10 billion from $11.35 billion a month earlier.
On the inflation and interest rate front, the CME Fedwatch Tool shows a 63.5% chance of a 50 basis points (bps) interest rate cut by the Federal Reserve in September. Another 25 bps cut is expected in November by 55.5%, while a 19.3% chance for a 50 bps cut and 25.4% for no cut are being penciled in for that meeting.
From a technical perspective, the US Dollar Index looks on track to rise by more than 1.5% to complete a classic V-shaped recovery pattern toward the July 30 highs above 104.34.
Spot Bitcoin ETFs experience three days of negative flows
Aug. 6 marked the third straight day of capital outflows from US-based spot Bitcoin exchange-traded funds (ETFs), the longest streak since spot Ethereum ETFs began trading on July 23.
According to data from Farside Investors, more than $64.5 million worth of BTC flowed out of Fidelity’s FBTC on Aug. 6. Grayscale’s converted GBTC saw outflows of $32.2 million, while ARK 21Shares’ ARKB and Franklin’s EZBC saw outflows of $28.9 million and $23 million, respectively. This led to a net outflow from spot Bitcoin ETFs of $148.6 million.
BlackRock’s IBIT, the largest spot Bitcoin ETF in terms of net asset value, reported zero flows on Aug. 6, along with seven others.
Continued net outflows from Bitcoin ETFs and the selling pressure faced by BTC have been blamed on the recent marketwide sell-off that saw the price of the pioneer cryptocurrency drop to seven-month lows below $50,000.
On a positive note, Morgan Stanley advisers are set to begin offering spot Bitcoin ETFs to their customers starting Aug. 7. This development is yet another important sign of the increased prevalence of BTC investment products.
“That’s a potential $13 billion in inflows at a 1% allocation,” asserted Juan Leon, Senior investment strategist at Bitwise, in an Aug. 7 post on X.
Leon acknowledged that although such large inflows may not come in all at once, it “would equate to ~75% of the net inflows since the ETFs launched” and could attract other asset managers to follow suit.
“And that’s only Morgan Stanley. Wells Fargo, Merrill Lynch, UBS, and other wirehouses to follow. Wave 2 of institutional inflows.”
Bitcoin long liquidations ramp up
A sharp movement in the Bitcoin futures market appears to have caused Bitcoin’s swift price decline on Aug. 7. The timing of the long liquidations coincided with the sharp drop in the price of the pioneer cryptocurrency.
Data from Coinglass shows that more than $17.65 million in BTC long positions were liquidated on Aug. 7, with the daily tally continuing at the time of publication. More than $10.5 million was liquidated over the last four hours. The total liquidations across the crypto market amounted to $165 million—$106.65 million were long liquidations.
Typically, long liquidations occur when the price of the asset being traded suddenly drops. This is because traders who were bullish on the asset and had opened long positions face losses since the market has moved against them.
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