Bitcoin, the world’s most dominant cryptocurrency, plunged from around $29,000 a coin amid rising global uncertainty surrounding interest rates.

The catalyst for this disruption was the emergence of discussions surrounding prolonged higher interest rates, which ignited a sell-off of risk assets such as Bitcoin.

The consequence was a flurry of mass liquidations of bullish positions, sending shockwaves throughout the digital currency space.

Bitcoin, which had been hovering near the $29,000 mark, experienced a drastic plunge to as low as $25,314 within a mere 24-hour interval. Even though rebounded modestly during early European trading on Friday, the toll of this tumultuous episode was evident with over $1 billion worth of positions unwound during the selloff as reported by Coinglass data.

Despite the setback, Bitcoin remains notably resilient, maintaining a position 60% higher than its year-start value.

A pivotal focus for crypto traders now centers on the critical $25,000 level for Bitcoin. Should this level be breached, the positioning of options suggests the potential for a cascading effect of liquidations, further amplifying the impact.

Market analyst Josh Gilbert from the trading and investment firm eToro emphasized the significance, stating, “With limited catalysts to push Bitcoin higher in the short term, a fall below $25,000 could put bears in charge, and if the rout in global risk assets continues, Bitcoin could face further downside.”

Sentiment also felt the weight of a Wall Street Journal report indicating that Elon Musk’s SpaceX had divested its Bitcoin holdings following a $373 million write-down. The timing of SpaceX’s Bitcoin sale, however, remained unclear according to the Journal report.

After a three-week period of relative stagnation, the cryptocurrency market is showing renewed signs of life with a surge in fund inflows, most of which are pouring into Bitcoin (BTC).

This resurgence in interest comes hot on the heels of the release of July’s inflation figures, which were pleasantly surprised by exceeding expectations,  Investors King gathered.

Bitcoin Sees Inflows, Reversing Previous Trend
CoinShares, a leading digital asset tracking platform, published its weekly report on crypto fund flows, revealing a total of $28.5 million pouring into these funds in the past week.

A substantial chunk of this influx, around $27 million, found its way into Bitcoin. This marks a significant shift from the previous three weeks during which Bitcoin had faced net outflows of approximately $144 million.

Among other digital assets, Ethereum (ETH) and XRP also saw modest inflows, receiving $2.5 million and $0.5 million, respectively. Notably, XRP has now experienced sixteen consecutive weeks of inflows, witnessing a remarkable 127% growth in assets under management since the start of the year.

Market Sentiment Improves Post-Inflation Data
Experts at CoinShares attribute this improved market sentiment to recent US inflation data, which turned out to be slightly better than anticipated. This data point signifies that the possibility of a rate hike in September has diminished, contributing to a more favorable outlook for cryptocurrencies.

Federal Reserve’s Impact on Crypto Market
The decline of Bitcoin and other digital assets throughout the preceding year can be largely attributed to the aggressive rate hike strategy implemented by the Federal Reserve. The central bank took swift measures to curb soaring inflation, resulting in consistent downturns in the cryptocurrency market.

As the year progresses and the Consumer Price Index (CPI) retracts to a 3.2% year-over-year growth rate, indications suggest that the Federal Reserve’s rate hike campaign might have peaked. This development could indicate an opportune moment for investors to enter the market. According to the CME FedWatch Tool, market expectations indicate an 88% likelihood that the Federal Reserve will maintain interest rates at 5.25% during its upcoming September meeting.

ETF Enthusiasm Fuels Canadian and Swiss Inflows
The Bank of Canada, closely aligned with the Federal Reserve’s policies, is also anticipated to maintain a steady 5% interest rate until the year’s end. Notably, the majority of last week’s crypto inflows, amounting to $24 million, were directed towards Canada’s Purpose ETF, the world’s pioneering Bitcoin spot ETF.

Switzerland also witnessed substantial inflows, totaling $7.9 million. The excitement surrounding the potential approval of a US Bitcoin spot ETF began gaining momentum in June, stimulated by filings from major players like BlackRock and Fidelity. This excitement had a palpable impact on the cryptocurrency market, propelling Bitcoin above the $30,000 mark and resulting in consecutive weeks of substantial fund inflows amounting to $742 million.

Prospects of Bitcoin ETF Approval
Bloomberg’s ETF analysts currently assign a 65% likelihood of a Bitcoin spot ETF gaining approval in 2023, further bolstering expectations of positive market developments.

The crypto market, which had been boasting a substantial lead over stocks in 2023, is now facing a critical juncture as Bitcoin experiences a retreat below the $30,000 mark.

The year-to-date climb of the top 100 digital tokens has cooled to 46%, narrowly surpassing the 41% surge in the tech-heavy Nasdaq 100 Index.

The fervor around artificial intelligence products had propelled the equity measure, briefly propelling it above the MVIS CryptoCompare Digital Assets 100 Index in June.

One significant driver for digital assets was a court setback in the US regulatory crackdown, coupled with optimism surrounding the possibility of the nation allowing spot Bitcoin exchange-traded funds. However, these factors have gradually subsided, leading investors to focus on the potential impact of an expected Federal Reserve interest-rate hike this week.

Caroline Mauron, co-founder of digital-asset derivatives liquidity provider OrBit Markets, believes that the crypto rally has lost momentum after the initial excitement sparked by the ETF news, and there seem to be no other apparent catalysts on the horizon.

Nevertheless, downside risk is expected to be limited due to the Federal Reserve nearing the end of the current rate hiking cycle, providing support for risk assets, including crypto.

Technical indicators are signaling caution, with Bitcoin’s 20-week Bollinger bandwidth at its narrowest in seven years, suggesting the potential for more intense moves, particularly on the downside if key thresholds are breached. The Bollinger study is a method of analyzing volatility.

Market analyst Tony Sycamore of IG Australia Pty predicts that Bitcoin’s drop should extend towards the $26,000 to $25,000 range before finding support.

As of 6:35 a.m. in London on Tuesday, Bitcoin remained steady at approximately $29,100, having experienced a 3.3% decline the previous day. Meanwhile, smaller coins like XRP and Dogecoin showed mixed performance.

In other news, the highly-anticipated launch of Worldcoin, the crypto project co-founded by OpenAI Chief Executive Officer Sam Altman, saw a moderated rally after its initial surge.

Worldcoin soared to as high as $3.58 from its initial price of $1.70 but has since retraced to about $2. Data from CoinMarketCap indicates that approximately $625 million worth of the digital asset changed hands in the past 24 hours.

With the crypto market facing uncertainties, investors are closely watching how the situation unfolds, hoping for a potential resurgence after the recent retreat. Only time will tell whether digital assets can reclaim their former lead over stocks and continue their upward trajectory.