Why did iShares Bitcoin Trust fall 17% in April?

that much iShares Bitcoin Trust ETF (go -1.53%) The stock fell 17.1% last month, according to data from S&P Global Market Intelligence. Exchange-traded funds were launched earlier this year and have become a popular vehicle for those who want one. bitcoin Exposure to your investment portfolio. Macroeconomic conditions created a favorable environment for cryptocurrencies during the first quarter, but the situation reversed in April.

Bitcoin shows notable correlation

Bitcoin has become a more popular asset class as it gains wider acceptance among investors. These reputation changes generally benefit Bitcoin holders as a force to stimulate demand. However, this legitimacy comes with consequences, including exposure to the dominant forces in global capital markets.

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In recent years, the prices of Bitcoin and other popular cryptocurrency assets have shown high correlation with other speculative assets. The chart below shows Bitcoin’s performance over the past 5 years. ProShares Ultra QQQ ETFThis is a leveraged ETF that triples your daily performance. Nasdaq Composite. Bitcoin and technology stocks are influenced by shared market forces.

TQQQ Total Return Level Data from YCharts

Over the past five years, Bitcoin’s price has behaved similarly to the prices of high-growth technology stocks, except it has been much more volatile. Growth investors appear to be buying and selling this cryptocurrency asset as their general risk tolerance increases or decreases. It is no longer a niche community for tech enthusiasts, nor does it behave like a precious metals.

That relationship remained the same in April.

Bitcoin’s relationship with growth stocks continued in April, with the iShares Bitcoin ETF also falling.

Bitcoin price data from YCharts

Interest rates may be the most important macroeconomic factor for the stock market right now. The Federal Reserve raised interest rates in 2022 to prevent inflation. Higher interest rates discourage borrowing, which in turn reduces consumer spending, business growth investment, and employment. Because these conditions create uncertainty, they tend to suppress investors’ risk tolerance. Companies face a potential recession and weak growth prospects, making them less attractive to potential buyers. Rising interest rates also increase the likelihood of earning higher returns from lower-risk assets such as bonds. This prevents investors from purchasing riskier assets, with Bitcoin being one of the riskier asset groups.

For more than a year, investors have been expecting the Federal Reserve’s tightening policy to end. As inflation approaches its target rate, the central bank is likely to gradually cut interest rates. Economic data from last year showed investors expected interest rate cuts by mid-2024.

This optimism took a hit when the latest economic data was released in April. Inflation was higher than expected and employment indicators were better than expected. The Federal Reserve is unlikely to cut interest rates due to strong employment and high inflation, forcing investors to revise their expectations. It seems unlikely that interest rates will fall anytime soon. After several positive months for growth stocks and cryptocurrencies, recent signs of trouble have prompted investors to sell and lock in some profits.

Bitcoin is likely to fall relative to other popular risk assets it has been associated with over the past month. This shouldn’t necessarily deter long-term investors, but they should expect more volatility in the future.