Bitcoin Price Falls After Briefly Breaking Above $80,000
On Wednesday, Bitcoin fell below $78,000 after new US Personal Consumption Expenditures (PCE) data showed signs of price pressures. This came at a time when Bitcoin had briefly traded above $80,000, so the news had Bitcoin traders selling.
Before the news hit, Bitcoin’s price had gone to $81,235.03, which was the first time Bitcoin had traded above $80,000 since May. This signaled that the bullish sentiment had returned to the crypto markets. This was short lived as traders assessed the US economic news that caused investors to rethink the US interest rates and the inflation data that was releasing.
Once Bitcoin traded below $78,000, it dropped even further to $78,043, which showed Bitcoin’s volatile nature.
US PCE Inflation Comes in Above Expectations
According to the US Bureau of Economic Analysis, the headline PCE price index rose by 0.2% during the month of July. This was at the high end of expectations that had been in the range of 0.1% to 0.2% during the prior month.
On an annual basis, headline PCE inflation came in at 3.7% from a prior month of May at 4.1%, but remains at levels double the expectation of the Federal Reserve’s 2% target.
Core PCE Data Meets Market Forecast
Core PCE inflation, whereby food and energy price movements are ignored, increased 0.2%, in line with market forecasts. Month-on-month, core PCE inflation remained constant at 3.3%, in line with market expectations as well.
While the core data was as expected, the higher than expected headline PCE may be concerning for inflation staying elevated. This is important since the PCE is the Federal Reserve’s preferred measure for inflation when considering the state of the broader economy and where they may stand on monetary policy.
How Did Hot Inflation Data Impact The Markets?
The inflation data that came in hotter than expected heightened the selloff of risk assets as market participants began to doubt whether U.S. monetary policy would in fact be less accommodative. Following the inflation data, U.S. Treasury yields shot up, as market participants became concerned that with elevated inflation expectations, the Fed would not be able to shift to more accommodative monetary policy.
Bitcoin initially benefitted from a positive trend that saw the price of Bitcoin move to over $81,000, but hotter than expected PCE data drove negative sentiment. Higher rates increase the preference for yield safe haven investments, while putting pressure on high risk and high return investments such as crypto.
What’s Next with BTC?
Following the move down to $78,000, the important level of $80,000 has been established as a psychological resistance area following BTC’s move above $81,235.
The next major catalyst for Bitcoin is likely to be the other side of U.S. economic data and what it will mean for Federal Reserve policy. If the U.S. data shows more inflation, then the crypto markets may become even more volatile. Once Bitcoin breaks above $80K again, we could see renewed buying. For now, Bitcoin retracing down shows that macroeconomic data will likely drive short term price movements.
