Bitcoin's impressive rally in 2024, which saw the cryptocurrency reach a new all-time high just shy of $74,000, has hit a snag as macro risk appears to be creeping back into the market. The digital asset sold off by 3% on Thursday, with the decline accelerating following the release of the U.S. Producer Price Index (PPI) data for February, which showed inflation proving stickier than most expected.
The PPI rose 0.6% last month, double the pace in January and also double economist forecasts. The core PPI, which excludes food and energy costs, increased 0.3% in February, a slowdown from 0.5% in January but still ahead of forecasts for 0.2%. This data comes on the heels of the Consumer Price Index (CPI) earlier this week, which also came in faster than anticipated, with inflation ticking up to 3.2% annually and the core rate rising to 3.8%.
The persistent inflation has led to a rise in the 10-year Treasury yield, which had previously flirted with dipping below the 4% level earlier this month but has now risen to 4.30%. Alongside this, the U.S. dollar has broken out of a downtrend that began in mid-February, rising about 1% over the past week, including a 0.5% rise on Thursday. Traditionally, higher rates and a rising dollar tend to be negative for risk assets like bitcoin.
Expectations for easier monetary policy in 2024 are also being scaled back. Markets had come into the year anticipating as much as 150 basis points in Fed rate cuts in 2024, with the initial cut expected at next week's Federal Open Market Committee meeting. However, these expectations have now been largely abandoned, with no rate cut expected at the May meeting and the odds of lower rates in June falling to roughly 50%, according to the CME FedWatch Tool.
Bitcoin, which had risen about 70% in 2023 to reach a new record high, was likely vulnerable to a correction, and the inflation, interest rate, and dollar news may have given traders an excuse to lighten up. After touching $73,800 earlier Thursday morning, bitcoin slid to as low as $70,650 after the economic data release. At press time, it was trading at $70,448, down more than 3.6% over the past 24 hours.
Financial commentator Tedtalksmacro predicted on X (formerly Twitter) that the Fed would keep interest rates "higher for longer" on the back of the data. The next meeting of the Federal Open Market Committee (FOMC), due to take place on March 20, was already slated not to produce a rate cut.
Despite the recent volatility, popular trader and analyst Rekt Capital maintained a calm perspective, suggesting that all-time highs are classic battlegrounds for both upward and downward volatility and require time to "resolve" before trend continuation.
"Whenever Bitcoin breaks its old All Time High, price doesn't just enter an uninterrupted uptrend," he told X subscribers alongside an illustrative chart. "Historically, $BTC has experienced lots of upside & downside volatility around old ATHs. But once that volatility resolves itself... Price Discovery awaits."
Closer to home, fellow trader Jelle argued that current BTC price patterns see strength recover later on in the U.S. trading session, with weakness around the open. "Bitcoin has been seeing most of its volatility around the US Market Open hours," trader Daan Crypto Trades initially wrote about the phenomenon. "Especially the recent flushes are happening every time the market is open (and ETF trading goes live). The late US session and Asia session has seen us recover those flushes."
As the Federal Reserve continues to grapple with persistent inflation and the market adjusts its expectations for future monetary policy, bitcoin's vulnerability to macro risk factors has been brought back into focus. The cryptocurrency's ability to continue its impressive rally in the face of these headwinds will be a key test of its resilience and the strength of the institutional demand that has driven much of its recent gains.
