As of this writing, Bitcoin is trading around $117,729.81. The cryptocurrency is encountering resistance in sustaining its upward momentum from its peak of $126,000. Market sentiment and risk aversion are currently overshadowing the longer-term argument for currency devaluation.
The devaluation thesis, which suggests investment in scarce assets will increase, gained traction following a JPMorgan analysis released on October 1st. This argument centers on the idea that government spending and declining currency values will boost demand for assets that maintain their worth.
Assets like gold and Bitcoin, perceived as stores of value, would theoretically benefit from this environment. In line with this, gold reached a new high of $4,059.38 on October 10th.
However, while gold has seen gains under this scenario, Bitcoin has experienced a 4.2% decrease this week. What’s behind this divergence?
Short-Term Pressures Impacting Bitcoin
The U.S. dollar has strengthened by 1.3% this week and is nearing its strongest weekly close since mid-November of last year.
This dollar strength began after Japanese government bond yields reached their highest level in 17 years, boosting the dollar’s value.
Concerns about a potential stock market bubble, driven by stock prices near record highs, prompted traders to reduce risk exposure mid-week.
Adding to market unease, on October 10th, President Donald Trump threatened China with tariffs in response to their dominance in the rare earth element market, a key component for technology manufacturing.
Impact on Bitcoin Market Structure
These macroeconomic factors have affected a significant driver of Bitcoin’s price: demand from exchange-traded funds (ETFs).
While Bitcoin ETFs saw substantial inflows of over $1.2 billion on October 6th, marking the second-largest daily inflow on record, these inflows decreased to $875.6 million the following day.
Figures from Farside Investors indicate that inflows continued to decline on October 8th, reaching $440.7 million. October 9th saw the smallest inflow during a nine-day positive streak, with roughly $198 million entering Bitcoin ETFs.
The tariff threat from President Trump on October 10th created a risk-off environment, leading to $807 million in long position liquidations within 24 hours, with $580 million liquidated in just four hours.
A Temporary Dip?
Despite the current market fluctuations, Bitcoin is still expected to perform well in the fourth quarter.
The pause in equity market gains, the volatile demand for safe-haven assets, and the trade-related shock at the end of the week have lessened investors’ eagerness to buy at peak prices.
Furthermore, Bitcoin’s current consolidation could be attributed to profit-taking following a 7% surge to $126,000, rather than a decline in its underlying fundamentals.
The devaluation argument remains valid, but short-term positioning and market dynamics are likely to influence price action in the near term before broader economic trends regain control.