Bitcoin Drops 4% to $35K Despite Soaring Tradfi Markets, But Analysts Remain Optimistic

Crypto markets suffered one of their worst drubbings in weeks on Tuesday despite welcome inflation data for October.

Bitcoin [BTC] briefly dove to as low as $34,970 during afternoon hours from near $36,600 this morning after the Consumer Price Index (CPI) for October came in flat versus expectations for a slight rise. At press time, bitcoin was recently changing hands at $35,300, down 3.7% over the past 24 hours.

Ether [ETH] tumbled almost 6% over the same time frame, losing the $2,000 level it previously regained last week for the first time since July on BlackRock's spot ETH exchange-traded fund (ETF) filing.

Large-cap altcoins such as dogecoin [DOGE], Polygon's [MATIC] and Tron's [TRON] native tokens endured 6%-7% declines over the day.

The CoinDesk Market Index [CMI], a broad basket of almost 200 cryptos, declined 4.5%, underscoring the market-wide losses.

Is the bitcoin price rally over?

Traditional markets, meanwhile, were all in on the idea that the Federal Reserve is now finished with rate hikes and indeed could be cutting rates in the first half of 2024. Late in the session Tuesday, the Nasdaq was higher by 2.3% (and now ahead more than 10% in November) and the S&P 500 was up 1.8%.

The action in bond markets was even more dramatic, with the 10-year Treasury yield plunging 20 basis points to 4.44%. Just three weeks ago, panicky action had taken the yield above 5% for the first time in more than 16 years. The dollar followed suit, with the DXY Index falling by a whopping 1.55%.

Despite the rough session today for crypto, slower inflation and lower bond yields may support prices, investment management firm Grayscale said in a Tuesday report. (Grayscale and CoinDesk share the same parent company, Digital Currency Group.)

"We believe the recovery in crypto valuations can continue if real interest rates peak and we continue to see progress toward spot ETF approvals in the US market," the report noted.

"ETF speculation is front and center for now, but the store of value narrative still holds and will give the asset a resilient and increasing floor," Noelle Acheson, author of the Crypto Is Macro Now newsletter, noted in an email to CoinDesk. "I very much doubt that [the recent sell-off] means the rally is done for now."

Acheson opined that the decline is "more likely to do with sellers locking in profits ahead of what could be another SEC spot ETF delay."

The U.S. Securities and Exchange Commission's (SEC) deadline to approve, deny or delay Hashdex's and Franklin Templeton's spot bitcoin ETF filings are due this Friday and while there's been a surge of enthusiasm regarding what could soon be approvals, most expect more delays this week.

"In this scenario, momentum might slow in the crypto markets as there would likely be multiple weeks to wait for significant news relating to the ETFs," K33 Research analysts noted in a Tuesday market report.