Bitcoin Price Drops Below $56,000 as US CPI Dashes 50bps Fed Rate Cut Expectations – Here’s the Next Direction for BTC

The price of Bitcoin (BTC) has dropped more than 3% on Wednesday, falling back below $56,000 and extinguishing most of what had appeared to be a hopeful rally since the beginning of the week.

This decline in Bitcoin’s price follows the recent release of the US Consumer Price Index (CPI) inflation data for August.

The CPI increased by 0.2% month-over-month and 2.5% year-over-year, as anticipated. However, the Core CPI was slightly higher than predicted, registering a 0.3% month-over-month increase compared to the forecasted 0.2% rise.

US CPI Core (M/M) Aug: 0.3% (est 0.2%; prev 0.2%)
– CPI (M/M) Aug: 0.2% (est 0.2%; prev 0.2%)
– CPI Core (Y/Y) Aug: 3.2% (est 3.2%; prev 3.2%)
– CPI (Y/Y) Aug: 2.5% (est 2.5%; prev 2.9%)

— LiveSquawk (@LiveSquawk) September 11, 2024

This data aligns with the view that US inflation is moving closer to the Federal Reserve’s 2.0% target.

This suggests that there remains a possibility for a rate cut from the US central bank later this month.

However, the data has largely diminished the chances that the Fed would initiate its rate-cutting cycle with a 50 basis points adjustment.

According to the pricing in the US interest rate futures market via the CME, the implied likelihood of a 50bps rate cut later this month has decreased to 15% from 34% just one day prior.

This shift in market expectations has put pressure on Bitcoin’s price as well as on traditional risk assets such as US stocks.

The S&P 500 fell by 1.4% to just above 5,400, bringing monthly losses to over 4%.

Other negative influences may also be dampening risk appetite and affecting Bitcoin’s price.

Harris Wins Presidential Debate

Democratic presidential candidate and current Vice President Kamala Harris was generally seen as outperforming Republican nominee Donald Trump in their debate on ABC last night.

Trump is perceived as the more evidently pro-crypto/Bitcoin candidate of the two.

According to the decentralized political betting platform Polymarket, Trump had a 53% chance of winning the election compared to Harris’ 45% before the debate.

However, those odds were evened out to 49% for both candidates after the debate.

World’s largest prediction market.
Before the debate After the debate pic.twitter.com/p1KjOOFZU1

— i/o (@eyeslasho) September 11, 2024

Hawkish remarks from Bank of Japan officials during the Asia Pacific trading session on Wednesday led to the yen reaching new yearly highs against the USD.

The strength of the yen has caused concern for risk assets since early July.

The anticipation of rate hikes in Japan is putting strain on the crowded pro-risk yen carry trade, where investors borrow in the historically low-interest rate yen to finance riskier investments elsewhere.

BTC Headwinds Build – Where Next for the Bitcoin Price?

The risks to Bitcoin’s price appear to be skewed to the downside.

A Kamala Harris presidency might not be entirely detrimental to the broader crypto industry—her campaign has indicated a willingness to reverse the anti-crypto stance of the current Biden administration.

Nonetheless, it wouldn’t be as favorable as a Trump presidency, given Trump’s open support for Bitcoin and his commitment to never sell it.

Thus, any developments that shift election probabilities in favor of Harris could negatively impact Bitcoin sentiment.

Macro factors could also continue to weigh on Bitcoin’s price.

While the Fed is poised to start a rate-cutting cycle, there are significant concerns regarding a potential US recession, along with worries that the Fed may be lagging in preventing one.

US macroeconomic data that continues to depict economic weakness is likely to keep pressuring the BTC price.

At the same time, yen strength is expected to persist as further BoJ rate hikes loom.

This combination is not conducive to a near-term rebound in Bitcoin’s price.

Technical indicators also look quite bleak.

The Bitcoin price‘s consistent inability to surpass its 50 and 200-day moving averages in August suggests a market where bears are in control.

The risks remain tilted toward a retest of the August lows beneath $50,000.

In a worst-case scenario, where the US enters a recession, Harris wins the presidential election, and yen strength continues to escalate, the Bitcoin price could potentially fall to as low as $40,000.

Buy the Dip?

This could present a significant opportunity for long-term investors who have faith in Bitcoin’s long-term adoption narrative.

Moreover, if US interest rates are trending back toward the 2% range, or lower, a more favorable liquidity environment will almost certainly serve as a substantial long-term advantage for the BTC price.

A Bitcoin price of $100,000 at some point in 2025 remains highly probable.

The post Bitcoin Price Plunges Back Below $56,000 as US CPI Kills 50bps Fed Rate Cut Hopes – Here’s Where BTC Is Headed Next appeared first on Cryptonews.