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Bitcoin (BTC) price drops due to higher inflation
Bitcoin bulls have had a reprieve so far this year from having to pay attention to things like the economy and the Federal Reserve’s monetary policy thanks to overwhelming demand for the cryptocurrency from new spot ETFs. For the moment, at least, the situation seems to be changing.
Thursday morning’s Producer Price Index (PPI) for February was another data point that buoyant inflation is proving much stickier than many expected. The government report said PPI was 0.6% higher last month, doubling January’s pace and also doubling economists’ forecasts. The so-called core PPI, which excludes food and energy costs, rose 0.3% in February, slowing from January’s 0.5% but higher than forecasts for 0.2%.
Earlier this week, the consumer price index (CPI) also came in faster than expected, with inflation rising to 3.2% annually and the benchmark rate rising to 3.8% .
After attempting to break below the 4% level earlier this month, the yield on the 10-year Treasury bond rose again to 4.30%. At the same time, the U.S. dollar has embarked on a downtrend that began in mid-February, rising about 1% over the past week, including a 0.5% rise on Thursday. All things being equal, higher rates and a rising dollar tend to be bad for risky assets like bitcoin (BTC).
Expectations for a much more accommodative monetary policy in 2024 continue to decline. Markets had entered the year anticipating up to 150 basis points of rate cuts by the Fed in 2024, with the initial cut coming at next week’s Federal Open Market Committee meeting. No one expects it anymore, nor is a cut expected at the May meeting. As for June, the odds of lower rates have dropped to around 50%. according to the FedWatch Tool ECM.
After rising by around 70% in 2024 to a new record high just under $74,000, bitcoin was certainly vulnerable to a correction and it may be that news on inflation, interest rates and the dollar gave investors trader an excuse to lighten up. After hitting $73,800 on Thursday morning, bitcoin fell to as low as $70,650 following the economic data. At the time of writing, the stock was trading at $70,900, down more than 3% in the past 24 hours. The widest CoinDesk 20 Index was only 1.7% lower, with gains in Solana and Dogecoin aiding that indicator’s outperformance.