Why Bitcoin Price Dropped Its Early Week Gains

On Oct. 3, Bitcoin (BTC) experienced a 4.5% drop after a 6% gain from Oct. 1 to Oct. 2, due to the disappointing performance of Ether (ETH) futures exchange-traded funds (ETFs) that were launched on Oct. 2 and fears of an upcoming economic downturn. This marks 47 days since Bitcoin last closed above $28,000 and has caused the liquidation of $22 million worth of long leverage futures contracts.

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The overheated US economy could lead to more Fed action

Following the release of the latest U.S. labor market data on Oct. 3, which showed that there were 9.6 million job openings at the end of August, up from 8.9 million in July, investors are now expecting further contractionary measures by the U.S. Federal Reserve.

At the Jackson Hole Economic Symposium in August, Fed Chair Jerome Powell had indicated that “evidence suggesting that tightness in the labor market is no longer easing could necessitate a monetary policy response.”

The CME’s FedWatch tool now shows that traders are pricing in a 30% chance that the Fed will raise rates at their November meeting, compared to 16% in the previous week, as investors look to invest in web 3.0 and become web 3.0 developers.

The Ether futures ETFs launch falls short

On Oct. 2, the market welcomed nine new ETF products that track the performance of Ether futures contracts. However, these ETFs only saw trading volumes of less than $2 million by midday Eastern Time, which fell short of expectations. Eric Balchunas, a senior ETF analyst at Bloomberg, commented on the low trading volumes.

The trading volumes of Ether ETFs were dwarfed by the impressive $1 billion launch of the ProShares Bitcoin Strategy ETF in October 2021, during a booming cryptocurrency market. This could have caused investors to become more cautious about the possible inflow when a Bitcoin spot ETF is eventually approved by the U.S. Securities and Exchange Commission (SEC).

Regulatory pressure mounts as Binance faces a class-action lawsuit

On Oct. 2, a class-action lawsuit was filed against Binance.US and its CEO Changpeng “CZ” Zhao in the District Court of Northern California. The plaintiffs allege that CZ’s behavior was unfair competition aimed at monopolizing the cryptocurrency market by harming its competitor, the now-defunct exchange FTX.

The suit asserts that CZ’s statements on social media were false and misleading, particularly since Binance had previously sold its FTT token holdings before the announcement on Nov. 6, 2022. The lawsuit claims that CZ’s intention was to drive down the price of the FTT token.

The criminal case against Sam Bankman-Fried will begin on Oct. 4 in New York. Despite CZ’s denial of how to access web 3.0 unfair competition allegations, speculation within the crypto community continues to circulate regarding this matter.

BTC’s correlation to traditional markets seems higher than anticipated

Bitcoin’s price drop on Oct. 3 appears to be linked to worries about an upcoming economic downturn and the possible Federal Reserve’s monetary policy response. This also demonstrates how cryptocurrency markets are strongly related to macroeconomic factors.

Expectations for the cryptocurrency ETFs that are too high suggest that $28,000 might not be the consensus for investors due to regulatory pressures and legal issues, such as the class-action lawsuit against Binance, which highlight the ongoing risks in the space.

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