Bitcoin (BTC) price declined by 4.1% in the early hours of Sept. 30, retesting the $63,500 support level and erasing the gains from the previous five days. The recent attempt to surpass $66,000 lasted less than three days, but the correction only resulted in under $40 million in leveraged long futures being liquidated. This data suggests that bulls were not caught off guard, though the factors driving the downturn remain present.
US economic outlook is uncertain, adding pressure on BTC price
Stock market futures in the United States slipped 0.20% as investors awaited US Federal Reserve Chair Jerome Powell’s comments on the economic outlook. Concerns are rising about the activity in the services and manufacturing sectors and the upcoming September jobs report on Oct. 4. Bank of America US economist Aditya Bhave wrote in a note to clients on Sept. 27 that "The labor market is the biggest risk to our outlook," according to Yahoo Finance.
Given Bitcoin's high short-term correlation with the stock market, traders believe that a slowdown in the S&P 500 could negatively affect BTC price. Some analysts argue that a potential bubble in the artificial intelligence (AI) sector could trigger market panic, leading investors to shift toward safe-haven assets such as short-term government bonds and cash.
Number of funding rounds on AI companies. Source: Aventis Advisors
Mike Fishbein, author of the “AI Marketing Brief” newsletter, contends that the technology itself isn’t the primary driver behind a potential AI market crash. In his view, the problem lies in how most users are engaging with these services, which currently rely on providers like ChatGPT (OpenAI), Gemini (Google), Copilot (Microsoft), and Grok (X).
Source: Mike Fishbein
Fishbein points out that the cost of utilizing large language models (LLMs) has “plummeted,” while companies continue to charge “bloated” subscription fees. He predicts that customers will eventually “wise up,” leading to lower pricing for these services and reducing revenue potential, making it harder to afford increasingly expensive AI hardware.
Weakening European economies and escalating Middle East conflict
Traders are increasingly concerned that the global economy is starting to show signs of weakness.
In Europe, economic conditions have worsened, with automaker Stellantis lowering its margin outlook for the year, causing its stock to drop by 14% on the Netherlands stock exchange. This announcement comes on the heels of Volkswagen’s cost-cutting measures, which included considering factory shutdowns in Germany for the first time in its 87-year history.
Bloomberg reported that Germany, the largest economy in the Eurozone, is on track for 0% or negative economic growth in 2024, driven by a halt in gas supplies from Ukraine and weak demand from China. Similarly, the Bank of England forecast a meager 0.3% economic growth for the third quarter. Meanwhile, UK house prices rose 3.2% year-over-year, a sign of potential stagflation.
Germany industrial production. Source: Jeroen Blockland
Related: Bitcoin maximalist paradox: BTC adoption threatening founding principles
Adding to the global economic risks is the escalating tension in the Middle East following recent attacks in Lebanon. Israeli Prime Minister Benjamin Netanyahu stated that the actions taken so far "will not be enough," according to CNBC. If oil prices rise significantly, it would likely push inflation higher, limiting the US Federal Reserve's ability to continue cutting interest rates.
Ultimately, Bitcoin’s inability to maintain its bullish momentum is largely due to the deteriorating socio-economic environment, marked by weak economic growth, escalating conflicts, and investor fears that central banks may no longer be able to lower interest rates.
While these factors could support Bitcoin’s price in the long term, the current environment favors uncertainty. As a result, traders are shifting away from risk-on assets like cryptocurrencies, seeking safer investment options in the near term.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.