Why Did Bitcoin Drop to $27,500?

Bitcoin’s current value is approximately $27,500, experiencing a decline of more than 9% over the past week. Unfortunately, this downward trend erased Bitcoin’s gains in early April when it crossed $30,000. Furthermore, it has now gone below the previous month’s closing value of roughly $28,500.

Why Did Bitcoin Drop to $27,500?
Why Did Bitcoin Drop to $27,500? Image by frimufilms on Freepik

Factors Resulting in Bitcoin Price Drop

US Dollar Strengthening

A lot of major coins fell by double digits last week. So, what was the reason? The decline in Bitcoin’s value can be attributed to the strengthening of the US dollar, which is expected to continue rising due to the American central bank’s upcoming May policy rate meeting. This is because a higher interest rate results in a stronger dollar. This makes non-yielding assets such as gold and cryptocurrencies less attractive to investors. Interestingly, Bitcoin has had a stronger correlation with gold rather than stock market indices, according to Valkyrie Fund’s data. This correlation has been further emphasized after the collapse of Silicon Valley Bank, which has sparked concerns about banking failures.

Growing Government Debt

The crypto industry may also be impacted by the looming debt ceiling crisis. The U.S. Treasury currently holds a record amount of debt, surpassing the $31.4 trillion debt limit with about $31.46 trillion already borrowed. The debt ceiling is the maximum amount of debt that the government can borrow to fulfill its financial obligations. The decision to change the debt ceiling lies with Congress, which can vote to increase it with a majority vote.

If the U.S. government fails to increase the debt ceiling, it could result in an economic crisis as interest payments on U.S. bonds are delayed. The market’s concern was evident as credit default swap contracts for betting against the U.S. dollar rose to levels not seen since 2008.

Low Bitcoin Liquidity

Thin order books and low liquidity conditions have been identified as key factors contributing to market movements caused by relatively small-sized orders. For instance, last week, there were two sell orders worth $5.97 million. It was equivalent to 199.2 BTC, and it was sufficient to trigger a bearish breakout in Bitcoin’s price at $30,000. This was highlighted by Riyad Carey, a researcher at Kaiko Data. She also warned about the dangers of low liquidity conditions causing significant drops in markets.

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Did The Meme Coins Fell?

Similarly, meme coins could not withstand the bearish sentiment and fell short after their week-long high. On Sunday, meme coins faced a significant drop in prices along with Bitcoin’s inability to regain its $28,000 level. As a result, the frog-themed PEPE token, which had gained a lot of popularity after a buyer turned a $250 investment into an on-paper profit of over $1 million, lost 30% of its value from its peak on April 20 and is down by 13% on the day.

Dogecoin, the largest meme coin by market cap, has also fallen over 12% in the past week. It was similar with most of the top-ranked memecoins slipping by double digits over the same time period. The week beginning April 17 witnessed a significant surge in memecoins, led by the newly-launched PEPE, resulting in high trading volumes that congested the Ethereum network.

Closing Thoughts

Despite, the market bearish market outlook, many traders are still very positive about BTC’s growth. The fear and greed index still gives an edge towards greed. Therefore, it is best to do proper research and trade carefully.

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