Why is Bitcoin falling? Four key drivers and what to watch this week

Bitcoin is down around 2.5% on Monday, extending last week's sharp decline as the regulatory outlook sours, institutional ETFs record net outflows and ahead of U.S. CPI data. 

Bitcoin fell to $73,500 on Sunday, its lowest level since August, with liquidations hitting $1.1 billion over the past 24 hours. While BTC has recovered slightly to $74,000 at the time of writing, the picture remains bearish, with several key catalysts in focus. 

Regulatory concerns 

Bitcoin fell sharply last week and is extending those declines amid mounting concerns over increased regulatory control following the Democrats' victory in last week’s midterm elections. 

Senator Elizabeth Warren, who has been vocal about her scepticism towards crypto and the need for tighter anti-money laundering rules, is set to lead the powerful Senate Banking Committee. This would give her expansive authority over the financial industry and could lead to greater crypto regulation. 

This would be a stark contrast to the past two years, when Republicans have broadly backed pro-crypto legislation, helping lift institutional demand. 

ETF outflows ramp up 

Expectations of a less favorable stance from a Democratic Congress have contributed to worsening sentiment towards crypto and institutional outflows. Bitcoin ETFs saw $1.28 billion in outflows last week, marking the worst weekly outflows since June last year. 

The outflows came as crypto failed to participate in a rebound seen across the financial markets, particularly tech stocks, on Friday. Persistent Bitcoin ETF outflows this week could keep further pressure on BTC. 

US CPI and PPI data 

U.S. CPI inflation data will be released on Tuesday and is expected to show that CPI rose to 3.9% year-on-year in October, up from 3.7% in September. However, with oil prices jumping 15% across October, there is potential for an upside surprise. Meanwhile, core CPI, which excludes more volatile items such as food and fuel, is expected to continue rising to 2.8%, up from 2.6%. 

The inflation data comes after a stronger-than-expected U.S. nonfarm payroll report on Friday, with expectations for a December rate hike sitting at 80%. Hot inflation could cement expectations for a 25-basis-point December hike, which may put further pressure on BTC, which often performs poorly in higher interest rate environments. 

What next for tech stocks and the AI selloff? 

Bitcoin came under pressure last week as the tech-heavy Nasdaq plunged 5.5% on Thursday in the fallout from the midterm elections. Investors have grown increasingly nervous about the AI trade amid concerns that the Democrats could slow the pace of the AI infrastructure buildout. This comes amid already elevated concerns over the huge amounts being invested in AI infrastructure and whether those investments will deliver timely returns. 

This matters to BTC because it trades with a high correlation to the Nasdaq 100. The 30-day rolling correlation coefficient is 0.80, signaling a strong positive correlation. 

This week, attention will remain on the tech trade as Nvidia falls 5% following CEO Jensen Huang's affair with an alleged Chinese spy and ahead of earnings from neocloud firms CoreWeave and Nebius, considered barometers of the AI trade. 

BTC technical analysis 

BTC/USD continues to trade within a descending channel dating back to the start of October. The price has fallen below both its 50 and 200 EMAs, reaching $74,000. This, combined with the RSI below 50, keeps sellers hopeful of further downside. 

On the downside, attention turns to $72,500, the 50% Fibonacci retracement of the move from the $57,700 low to the $87,300 high. A break below this level would bring the psychological $70,000 mark into focus, followed by $64,000, the 78.6% Fib retracement. 

On the upside, buyers would first need to reclaim $76,000, where the 200 EMA converges with the 38.2% Fib level. A sustained move above this level would bring $80,000 into focus, aligning with the 23.6% Fib level. Beyond here, attention turns to $84,000, a key resistance level last tested in mid-October.