This is what caused Bitcoin (BTC) recent drop below $30K, and why Bitcoin may struggle to break through the $32K barrier

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Last Updated on June 2, 2022 by Bitfinsider

Bitcoin (BTC) fell almost 5% on Thursday, wiping out all of its recent gains as investors braced for additional Federal Reserve policy tightening.

After soaring as high as $32,000 in recent days, the token has dropped over 5% in the last 24 hours to $29,867.

The drop was sparked by the Federal Reserve of the United States, which began officially decreasing its $8.9 trillion balance sheet on Wednesday in an effort to keep inflation under control. Most risky assets suffered losses as a result of the shift.

During Wednesday’s session, stock markets also fell, with the Nasdaq 100, BTC’s closest stock parallel, losing 0.7 percent.

The Fed said on May 4 that it would begin shrinking its balance sheet at a rate of $47.5 billion per month. The move is unfavorable for BTC since it indicates lesser market liquidity, which means fewer prospective inflows into the cryptocurrency.

When other measures, such as interest rate hikes, fail to control inflation, the Fed resorts to balance sheet reduction. The usage of such a metric today also reflects the significant level of economic danger that inflation poses.

BTC is trading at $30,008 at the time of writing, down 8% in the last 24 hours. Bitcoin was rejected above $32,000 before retesting these lows, and it appeared to be moving to the middle of its current range.

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