Bitcoin Loses Steam as Record US Stocks, ETF Outflows Stoke Rate and Liquidity Fears

Chip rally and ETF outflows weigh on prices

Focus shifts to US monetary policy and Treasury settlement schedule

Bitcoin may face further pressure if investor sentiment deteriorates

Bitcoin has lost momentum since mid-May, retreating to levels last seen two months ago. Record highs in US stocks have drawn funds into equities, while heavy outflows from spot Bitcoin exchange-traded funds have added pressure. The market is now focused on US monetary policy. If expectations for rate cuts fade further or liquidity conditions tighten, a short-term rebound in Bitcoin may prove difficult.

Bitcoin rally loses steam

According to Upbit, Bitcoin closed at 104.14 million won, or about $75,500, on June 1. It was the first close in the 104 million won range on the exchange since April 5, when it ended at 104.28 million won. The recent downtrend has also been pronounced. After reaching 114.89 million won on May 25, Bitcoin fell for four straight trading sessions.

Bitcoin began climbing in earnest in late March. It rose from 100.37 million won on March 29 to 110.45 million won on April 15. The market got another boost in May after the US Senate Banking Committee passed the CLARITY Act, a digital-asset bill. Bitcoin traded at 120.43 million won on May 10 and 120.09 million won on May 11, holding above 120 million won for a second straight session and marking this year's high. A week later, however, it had fallen to 114.32 million won on May 18.

The trend has also weakened in overseas markets. CoinMarketCap data show Bitcoin traded at $82,499 on May 6 and $82,139 on May 11. By May 16, it had fallen below $80,000. As of June 1, it was trading around $73,000.

Stock rally and fund outflows form a double headwind

Several external factors appear to have pushed Bitcoin lower. One is the strength of the stock market, which has reduced relative enthusiasm for Bitcoin. With US equities extending their run of record highs, investment money has been shifting toward stocks. On June 1, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all hit record highs in New York trading. Artificial intelligence and semiconductor shares have continued to lead gains.

Heavy ETF outflows have also weighed on the cryptocurrency. Farside Investors data show that 12 US-listed spot Bitcoin ETFs posted net outflows for 10 straight trading days from May 15 through May 29. Total outflows during that period reached $2.9623 billion. On May 27 alone, $733.4 million left the funds.

Market participants have also turned more cautious than they were in early May. The Crypto Fear & Greed Index compiled by digital-asset data firm Alternative stood at 29 on June 1, a level classified as "Fear." The closer the index is to zero, the stronger investor fear. It stood at a neutral 50 on May 5 and 49 on May 12. Since May 16, however, it has fluctuated between the high 20s and low 30s, remaining in fear territory.

All eyes on US monetary policy

The formal addition of Kevin Warsh, regarded as a hawk on monetary policy, to the Federal Reserve on May 22 has also been seen as a source of pressure on the Bitcoin market. Cryptocurrencies tend to react sensitively to interest-rate changes. When benchmark rates stay elevated, market liquidity tends to shrink and appetite for risk assets often weakens.

US inflation continues to rise. The Commerce Department recently said the personal consumption expenditures price index rose 3.8% in April from a year earlier. The PCE price index is one of the Fed's key gauges for assessing inflation. If price pressures persist, the timing of any rate cut could be pushed back further.

The Fed's tight policy stance is another burden for digital assets. Minutes of the Federal Open Market Committee released on May 20 showed many officials were concerned about prolonged inflation. Most participants expected it would take considerable time for inflation to return to the Fed's 2% target. Markets took that as a sign the Fed sees little room for an early rate cut. As expectations for lower rates weaken, pressure on risk assets such as Bitcoin could increase.

The prospect of a further drain on liquidity is also difficult to ignore. Michael Kramer, chief executive officer of US investment research firm Mott Capital Management, said Treasury settlement flows could pull $150 billion of liquidity out of the market by June 5. That would leave less money available for investment assets such as Bitcoin. "If liquidity is absorbed through Treasury settlements, Bitcoin could fall to much lower levels," Kramer said.

Park Si-on, Hankyung.com reporter ushire908@hankyung.com