FinanceApp Today, the trading price of Bitcoin, the world's largest cryptocurrency by market cap, has reached its lowest point in a month, and the main logic may be that the outflow speed of funds from investment products in digital assets has accelerated, and the prospect of rising long-term borrowing costs set by the Federal Reserve has weakened the overall valuation of the cryptocurrency market. On Tuesday, the trading price of Bitcoin, the largest cryptocurrency by market cap, fell by nearly 3% at one point, reaching the level of mid-May, and then narrowed. It is currently hovering around $65,740. Ethereum, Solana, Dogecoin, and other small-scale cryptocurrencies have seen varying degrees of decline in their prices.

The current round of long-term prosperity of digital assets that began in 2023 seems to be gradually fading, and some analysts express doubts about the prospect of cryptocurrency-related assets such as Bitcoin ETFs. The latest data from CoinShares International Ltd.show that investors withdrew funds totaling as much as $600 million from Bitcoin ETFs and other cryptocurrency-related products last week, which is the largest withdrawal amount since March.

Overall, the stubborn and sticky inflation rate in the United States has caused traders to lower their expectations of a rate cut by the Federal Reserve this year, and their expectations of the long-term “neutral interest rate” have tended to rise. The prospect of rising long-term borrowing costs poses a huge threat to the investment prospects of speculative assets such as cryptocurrencies, which may put pressure on the valuation of cryptocurrencies for a long time.

The latest rate “dot plot” published by the Federal Reserve shows that most Federal Reserve officials expect to cut interest rates only once in 2024, which is two fewer times than the forecast in the dot plot in March, with a total decrease of 50 basis points.

In addition, as expectations of a rate cut this year have greatly diminished, Federal Reserve officials have also raised their policy rate paths for 2025. The median rate expected by them for the end of 2025 has increased slightly from 3.9% to 4.1%, while the median expected long-term policy rate has increased from 2.6% to 2.8%. This also means that most Federal Reserve officials are more convinced that the “neutral interest rate” is rising in reality.

In this quarter, the investment return rate of traditional assets such as stocks and bonds is much higher than that of Bitcoin, an emerging asset that has swept the world. This is a big reversal compared to the three months ending in March, when many cryptocurrency assets, including Bitcoin, performed significantly better than traditional assets such as stocks and bonds.

CEO of BTC Markets Pty, Caroline Bowler, said: “Cryptocurrencies such as Bitcoin are increasingly vulnerable to macro factors such as expected Federal Reserve interest rates.” She added that she remains optimistic about the long-term investment prospects of cryptocurrencies.

Rare setback for newly listed cryptocurrencies

There are clear signs of declining investor appetite and risk preference in the entire cryptocurrency market, including demand for new cryptocurrencies. The ZK token comes from a popular project established on the Ethereum blockchain and plunged by one-third after its listing on Monday. This is a rare event for newly listed cryptocurrencies that are highly anticipated and yet faced heavy selling pressure.

In South Korea, a recent local report shows that new securities trading regulations to be introduced next month may force cryptocurrency exchanges to reduce the number of cryptocurrencies available for investors to trade. South Korea has long been the core engine of demand for small-scale cryptocurrency assets (the so-called altcoins), and the report may have frightened some cryptocurrency traders, causing them to dump some less popular cryptocurrency assets.

However, it is worth noting that since the beginning of 2023, the trading price of Bitcoin has doubled and reached a historic high of $73,798 in March this year. With the huge scale of funds brought by Bitcoin ETFs, not only the total market value of Bitcoin, the highest cryptocurrency by market cap, continues to grow, but also the market value of many small-scale cryptocurrencies such as Ethereum has continued to expand since this year.

Bitcoin and many cryptocurrencies such as Ethereum have continued to rise this year, and the collective trend of skyrocketing has surpassed that of 2023, mainly due to the explosive demand for the first Bitcoin ETF listed in the United States. However, with the recent obvious slowdown in ETF capital inflows, the price of Bitcoin has recently cooled down, and small-scale cryptocurrencies such as Ethereum have also shown a downward price adjustment trend.