Bitcoin's Steep Decline Traced Back to 5 Major Factors: Tariffs, ETFs, and More
In the financial world, the past week has seen a significant correction in Bitcoin's price, with the cryptocurrency dipping by a few thousand dollars. This downturn, which occurred between August 5-6, 2021, was primarily influenced by a series of macroeconomic factors.
Firstly, the US Federal Reserve maintained interest rates at a relatively high range (4.25%-4.50%) without signaling a near-term rate cut. This decision, which signaled a hawkish stance, amplified risk aversion across financial markets, weighing down price-sensitive and riskier assets such as Bitcoin.
Secondly, reciprocal tariffs imposed by the US on countries including Taiwan and Vietnam added to the uncertainty and increased risk aversion. These tariffs, ranging from 10% to 39%, contributed to a "risk-off" environment that depressed US equities and cryptocurrencies alike, leading to Bitcoin's price fall below key support levels.
The combination of the Fed's hawkish posture and escalating tariff-related trade tensions provoked this risk-off environment, which depressed US equities and cryptocurrencies alike. Bitcoin's price fell below key support levels near $114,000-$117,200 during this period.
Seasonal factors may have also played a role, as August tends to be a quieter summer month for trading activity, which can exacerbate volatility.
These macroeconomic developments undermined the recent bullish momentum Bitcoin had built since hitting an all-time high around $122,838 in July. As a result, Bitcoin dropped to a local low near $112,296 on August 3.
In summary, the macroeconomic drivers behind Bitcoin's early-August 2021 correction were a firm Federal Reserve interest rate stance dampening risk appetite, US trade tariff uncertainties increasing market jitters, and a general shift to risk-off sentiment that pressured higher-risk assets including cryptocurrencies.
- The hawkish stance of the US Federal Reserve, as indicated by maintaining interest rates at a high range and not signaling a near-term rate cut, contributed to a risk-off environment that weighed down price-sensitive and riskier assets like Bitcoin and Ethereum.
- Reciprocal tariffs imposed by the US on countries like Taiwan and Vietnam added to the uncertainty and increased risk aversion, creating a "risk-off" environment that not only depressed US equities but also cryptocurrencies such as Bitcoin and other altcoins.
- Technological factors may have also played a role, considering August tends to be a slower month for trading activity, which can exacerbate volatility in the technology-driven finance sector, including crypto trading on blockchain platforms.
- Demonstrating vulnerability to macroeconomic factors, Bitcoin dropped to a local low near $112,296 on August 3, as a result of the combined effect of the Fed's interest rate stance, trade tariff uncertainties, and the general shift to risk-off sentiment that pressured higher-risk assets like Bitcoin, Ethereum, and other crypto investments.
