Bitcoin Price Dips as US Inflation Data Surprises Analysts

Bitcoin Price Chart / Source Adobe / LuisaThe price of Bitcoin (BTC) has dropped below $49,000, marking a significant reversal of around $1,500 from its two-year high.

Bitcoin’s price falls below $49,000 due to strong US CPI data, affecting expectations of a Fed rate cut. What’s next for BTC?

📆 Last updated: February 13, 2024 11:56 EST | ⌛ 4 min read

Hey there, fellow crypto enthusiasts! Today we’re diving into the recent dip in the Bitcoin price and the surprising US inflation data that caused it. Strap in, because this is going to be a wild ride!

Bitcoin Price Takes a Tumble

The Bitcoin (BTC) price has seen a rollercoaster ride, dropping below $49,000 after reaching highs of around $50,400. The catalyst for this sudden turnaround? The release of hotter-than-expected US Consumer Price Index (CPI) data for January.

The headline CPI rose by 0.3% MoM, surpassing expectations of 0.2%. Additionally, Core CPI accelerated to 0.4% MoM from 0.3% in December, surprising analysts who expected it to remain unchanged at 0.3%. These unexpected inflationary pressures have raised concerns among Fed policymakers, who are now more cautious about starting a rate-cutting cycle.

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Naturally, this data caused macro investors to pull back on their rate-cut bets. Money markets now imply a less than 40% chance of rate cuts starting in May, down from over 60% just one day ago. However, the market’s consensus bet remains that rate cuts will begin in the first half of 2024, with money markets still implying an almost 80% chance of cuts by June.

Bitcoin Price Pulls Lower as Traders Pull Back on Rate Cut Bets

The prospect of higher interest rates for a longer period, as the Fed takes a cautious approach to rate cuts due to US inflationary pressures, has led to a surge in US government bond yields and the US Dollar Index (DXY). The US 10-year yield is up around 10 bps, reaching about 4.3%, while the DXY is at more than a two-month high above 104.75.

These higher yields have put pressure on interest-rate-sensitive assets such as US equities, gold, and our beloved crypto. The S&P 500 dipped over 1% on Tuesday, falling below 5,000. Gold also took a hit, dropping around 1.4% and slipping below $2,000 for the first time in two months. And guess what? Bitcoin hasn’t escaped this onslaught either.

Rising yields on risk-free assets, like US government bonds, reduce the appeal of riskier assets (like stocks and Bitcoin) or non-yielding assets (like gold and Bitcoin).

Spot Bitcoin ETF Inflows Remain Strong

But don’t fret just yet! This recent price pullback may not last long. In the past few months, macro factors have not been the main driver of the Bitcoin price. Despite reduced Fed rate cut bets, Bitcoin has managed to rally over 15%. And you know why? It’s because the focus has shifted to spot Bitcoin ETF approvals in the US.

Just over a month ago, spot Bitcoin ETFs got the green light, and since then, inflows into these ETFs have been strong. In fact, according to Farside.co.uk data, spot Bitcoin ETFs gobbled up over 10K BTC tokens on Monday alone. Net inflows have exceeded $400 million for three consecutive days. Talk about demand!

As Michael Saylor pointed out, the current demand for BTC from spot ETFs is 10 times what miners produce daily. With less than 1,000 new BTC tokens created each day (and that number cut in half in April due to the Bitcoin halving), the supply-demand dynamics are heavily favoring the bulls.

Where Next for the Bitcoin Price?

Given the demand shock currently driving the Bitcoin market and the impending supply shock, it’s no wonder that price predictions are turning more bullish. Investors are even paying a higher premium for options that protect against price upside rather than downside, indicating growing confidence in an upward trajectory.

On top of spot Bitcoin ETF inflows and the upcoming halving, macro factors are expected to become tailwinds when the Fed finally starts cutting rates later this year. Additionally, in times of regional bank troubles (which could bubble up soon), Bitcoin has proven to be an attractive safe-haven asset. Just take a look at the 50% price surge Bitcoin experienced last March during a bank crisis scare.

So, dear readers, keep your eyes on the prize and view any Bitcoin price dips as buying opportunities. It won’t be long before Bitcoin retests all-time highs at $69,000. 🚀

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Q&A:

Q: What caused the recent dip in the Bitcoin price?

A: The Bitcoin price dipped due to the release of hotter-than-expected US Consumer Price Index (CPI) data for January, which raised inflationary concerns among investors.

Q: Are rate cuts still on the table?

A: While rate cuts are now less likely to start in May, the market consensus still predicts rate cuts to begin in the first half of 2024, with a nearly 80% chance of cuts by June.

Q: Why did the Bitcoin price drop along with other assets?

A: Rising yields on risk-free assets, such as US government bonds, caused a decline in interest-rate-sensitive assets like US equities, gold, and Bitcoin.

Q: What is driving the recent rally in the Bitcoin price?

A: The recent rally in the Bitcoin price is driven by strong inflows into spot Bitcoin ETFs and the anticipation of the upcoming halving, which will reduce daily Bitcoin issuance.

Q: What are the future prospects for the Bitcoin price?

A: With a supply shock looming and a demand shock currently driving the market, price predictions for Bitcoin are getting more bullish. A retest of all-time highs at $69,000 is highly likely.

References:

1. Bitcoin needs to address scaling before ETFs drive momentum
2. Bitcoin steady around $43K as tumbling US regional bank stocks reignite worries
3. BTC’s demand from spot ETFs is 10x what miners produce daily
4. Bitcoin’s halving takes place
5. Bitcoin price in two week’s last March

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Hey, dear readers! What are your thoughts on the recent dip in the Bitcoin price? Do you believe it’s just a temporary setback, or are we in for a longer correction? Share your opinions in the comments below and don’t forget to hit that share button if you enjoyed this article! Let’s spread the crypto love on social media! 😄✨

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