Why is Bitcoin going down today?

On September 19, 2024, the Federal Reserve announced a 50-basis-point rate cut, lowering the federal funds rate target range from 5.25%–5.5% to 4.75%–5%. This marks the first rate cut since March 2020, ending a four-and-a-half-year period without reductions. Such a significant cut is relatively rare, as the Fed typically adjusts rates by 25 basis points. However, in light of specific economic conditions, this 50-basis-point cut signals the Fed's concern about the current economic situation and opens a new cycle of easing monetary policy. This shift suggests lower borrowing costs and increased liquidity, which could lead to fluctuations across global financial markets, including stocks, bonds, precious metals, and cryptocurrencies. In the cryptocurrency market, this rate cut could provide a short-term positive impetus.  From a monetary policy perspective, lower rates reduce the appeal of traditional low-risk assets like bonds, encouraging capital to flow into riskier assets such as stocks, real estate, and cryptocurrencies. Consequently, rate cuts often generate short-term upward momentum for these assets.

As the leader of the crypto market, Bitcoin's price performance is often a key indicator of overall market sentiment. With the Fed's rate cut raising expectations for a weaker U.S. dollar, investor interest in Bitcoin typically increases. Bitcoin is often regarded as digital gold, and during periods of monetary easing, its appeal as an inflation hedge grows. Additionally, the influx of institutional capital, particularly with the introduction of Bitcoin ETFs, facilitates easier allocation of Bitcoin in investment portfolios, further driving its price upward. However, Bitcoin's price remains vulnerable to macroeconomic factors, monetary policy shifts, and geopolitical risks. Should the global economy enter a recession, demand for Bitcoin may diminish, exacerbating price volatility.

While short-term market sentiment appears positive, investors should closely monitor global economic trends, policy shifts, and the evolving regulatory landscape to navigate potential market fluctuations in the long run.

At the 2024 Bitcoin Conference, the largest annual event in the cryptocurrency industry, former U.S. President and Republican presidential candidate Donald Trump declared his support for Bitcoin and cryptocurrencies. He pledged that if re-elected, he would designate Bitcoin as a U.S. strategic reserve asset and transform the country into the "crypto capital of the world" and a "global Bitcoin superpower." Trump outlined a plan to unleash the potential of this emerging industry and promised to establish an advisory committee to shape his administration's crypto policies.

According to a report from Public Citizen, a U.S. nonprofit monitoring group, corporate political donations during the 2024 U.S. election totaled $248 million, with approximately 48% coming from cryptocurrency companies such as Ripple and Coinbase. This underscores the growing political influence of the cryptocurrency industry, which is becoming an undeniable force. This trend highlights not only the increasing strength of the crypto sector but also sparks widespread discussion about its impact on U.S. politics and election outcomes. Analysts believe that crypto voters could play a crucial role in determining the winning candidate, and the rising political power of the cryptocurrency industry may ultimately push crypto into the mainstream.

As the 2024 U.S. election approaches, price movements of cryptocurrencies, including Bitcoin, have come under the market spotlight. Many analysts predict that as cryptocurrencies gain more political traction, Bitcoin's price is likely to rise leading up to the election. Increased market attention and participation from institutional investors are expected to drive Bitcoin demand. Additionally, Investors' optimistic outlook on Bitcoin could be reflected in its price, potentially pushing it to new highs. Historically, Bitcoin has demonstrated strong upward momentum before the U.S. elections, as seen in 2012, 2016, and 2020. Given these historical precedents, many expect Bitcoin to follow a similar trend as the November 2024 election approaches, possibly setting new all-time highs.

Despite the positive market sentiment toward Bitcoin's future, investors should remain cautious. The cryptocurrency market is known for its high volatility, and factors like policy changes and shifts in market sentiment can lead to sharp price fluctuations. Therefore, investors should carefully consider various factors and exercise caution when making decisions.

At 8:10 AM on April 20, 2024, the Bitcoin network marked its fourth halving at block height 840,000, reducing the mining incentive from 6.25 BTC to 3.125 BTC per block.

Supporters believe this halving could catalyze the next bull market, as demand—fueled by spot Bitcoin ETFs—rises while supply decreases.

Historically, price fluctuations surrounding Bitcoin halving events have garnered significant attention. While the halving is not expected to influence Bitcoin's price over the short term, many investors are looking to previous post-halving trends, anticipating a notable increase in the coming months. In the 30 days preceding the 2012, 2016, and 2020 halving events, Bitcoin prices rose by 5%, 13%, and 27%, respectively. The price peaks following those halving cycles were 93x, 30x, and 8x the price on the halving day. Additionally, there has been a noticeable rise in Bitcoin addresses in the 150 days following each event, with new addresses increasing by 83%, 101%, and 11%.

It's important to note that the dilution effect of newly mined Bitcoin on the total supply has weakened after each halving. For instance, after the first halving, newly mined Bitcoin accounted for 50% of the total circulating supply, significantly impacting overall supply. However, with this latest halving, new Bitcoin issuance will only represent 3.3% of the total supply, further diminishing the dilution effect.

While Bitcoin has historically experienced record price spikes post-halving, analysts from institutions like JP Morgan and Deutsche Bank suggest that the potential impact may already be priced into the market. Bitcoin's price surged 150% from October 2023 to April 2024, indicating that the halving event could dampen short-term prices. Prior to the halving, the market often anticipates a price rise, leading many investors to make early moves to capitalize on the expected bullish outcome. After the halving, some market makers may cash out for profit as the hype fades, increasing supply and potentially causing a price drop.

The U.S. Securities and Exchange Commission (SEC) approved 11 spot Bitcoin ETFs from Bitwise, Grayscale, Hashdex, BlackRock, Valkyrie, Invesco, Ark, VanEck, WisdomTree, Fidelity, and Franklin at 4:00 AM on January 11, 2024.

This landmark decision is expected to transform the crypto investment landscape, with several potential outcomes:

1. Increased exposure: The approval of spot Bitcoin ETFs aims to attract a wider investor base, making cryptocurrency investment more accessible to a diverse audience.

2. Regulatory recognition: The SEC's approval provides crucial regulatory assurance for Bitcoin, addressing investor concerns and enhancing confidence in investing alongside renowned financial firms.

3. Rising demand and positive impact: The anticipated influx of capital into spot Bitcoin ETFs has already driven Bitcoin prices upward.  Analysts predict that the market for spot Bitcoin ETFs could eventually reach $100 billion.

4. Retail investor access: Unlike traditional investment methods, retail investors can now access Bitcoin through spot Bitcoin ETFs without the need to manage a Bitcoin wallet.

In March 2023, an anonymous developer known as Domo introduced the BRC-20 protocol, built on the Ordinals protocol. BRC-20 represents a new Bitcoin token standard, utilizing JSON text files for transactions. Each JSON file corresponds to an Ordinal inscription with a unique identifying number  linked to a specific BRC-20 token. This standard facilitates fair launches for Bitcoin altcoins  and quickly brings Bitcoin Ordinals into the spotlight, resulting in tens of thousands of inscription tokens. Currently, about 95% of inscriptions on Bitcoin Ordinals are text-based BRC-20 tokens.

The introduction of the BRC-20 standard benefits Bitcoin in several aspects. First of all, it enriches the Bitcoin ecosystem. BRC-20 increases token issuance and application possibilities on the Bitcoin blockchain, providing a more diverse ecosystem.  Users can create various token types—such as stablecoins, security tokens, and governance tokens—to meet different needs,  driving innovation and development. Second, it increases usability. BRC-20 tokens expand Bitcoin's role beyond mere cryptocurrency.  Token holders can engage with various applications and projects, gaining access to a broader range of services and benefits. Third, it promotes DeFi development. BRC-20 tokens channel more liquidity and participants into DeFi applications on the Bitcoin blockchain. These tokens can also serve as collateral for loans and yield farming, further propelling DeFi growth. Fourth, it enhances competitiveness. As new blockchain platforms emerge, Bitcoin must continually innovate to maintain its competitive edge. The BRC-20 standard contributes to this goal by providing more functionality and possibilities and attracting developers and users.

Driven by Ordinals and BRC-20, Bitcoin's use cases have expanded beyond simple value storage and exchange, serving as an asset launchpad that significantly broadens its application scenarios. Following the introduction of Ordinals, new protocols such as Atomicals, Runes, and PIPE have emerged to help users and project owners issue assets on the Bitcoin blockchain.

On November 14, 2021, at 1:18 PM, Bitcoin’s block height reached 709,632, activating the Taproot upgrade. This significant upgrade introduces the Schnorr signature scheme, the Merkelized Abstract Syntax Trees (MAST) data structure, and the new Tapscript language. Taproot enhances Bitcoin's privacy, security, and functionality. By implementing new smart contract rules and encryption schemes, Bitcoin transactions become more flexible and secure, while also offering improved privacy protection. These advancements lay the groundwork for future scaling solutions and asset-launching protocols.

El Salvador officially makes Bitcoin legal tender.

The Legislative Assembly of El Salvador enacts an act designating Bitcoin and the US dollar as the country's legal tenders. Citizens can download a government-provided digital wallet for free. With this move, El Salvador becomes the first country in the world to officially adopt Bitcoin as legal tender.

In August 2017, the Segregated Witness (SegWit) upgrade for Bitcoin was activated at block height 481,824, introducing a significant scalability improvement and a soft fork. SegWit's primary goal is to address Bitcoin's limited transaction capacity and high fees. Prior to SegWit, Bitcoin transactions were restricted by a 1MB block size limit, leading to congestion and increased fees. By reorganizing Bitcoin's transaction data structure, SegWit effectively increases the block capacity, boosting the network's throughput. This allows more transaction data to be accommodated in each block, reducing congestion and curbing fee spikes. SegWit's significance extends beyond this; it paves the way for major future developments, including the Taproot upgrade. It also laid the foundation for innovations like the Ordinals protocol and BRC-20 tokens, which gained popularity in 2023. In this sense, SegWit plays a crucial role in shaping the “Inscriptions Summer” boom.