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BTC Bitcoin fell below US$78,000: Higher than expected inflation data triggered market concerns
On Wednesday, U.S. inflation data was higher than expected, reigniting market concerns about the limited room for easing monetary policy by the Federal Reserve. Bitcoin prices fell below US$78,000. Earlier in the session, Bitcoin climbed to about $81235, extending the strong rally since August. But the market reversed after the release of the personal consumption expenditure (PCE) report in July. At one point, the correction pushed Bitcoin prices lower to around $78,000, almost wiping out most of the day's gains.
Just a few days ago, Bitcoin once approached the US$80,000 mark thanks to increased demand for exchange-traded funds (ETFs) and improved liquidity in the government bond market. These factors have fueled recent gains.
PCE inflation rate is still well above the Federal Reserve's target
Official data showed that the PCE price index rose 0.2% in July from the previous month, compared with a 0.1% decline in June. The overall inflation rate was 3.7% year-on-year, higher than the market report's forecast of 3.6%. The core PCE index, which excludes volatile food and energy prices, also rose 0.2% month-on-month, with the core reading remaining at 3.3% annual rate.
Continued inflation is important to the cryptocurrency market because it may cause interest rates and government bond yields to remain high for an extended period of time. Minutes of recent Federal Reserve meetings show that policymakers are already discussing whether further policy tightening may be needed if inflation remains high.
Bitcoin's macro sensitivity returns
The latest decline highlights the speed at which Bitcoin's macro background changes. Earlier this week, Bitcoin rose with gold, briefly exceeding $81,000, as yields fell, the dollar weakened and treasury debt liquidity measures supported scarce assets. The rally pushed Bitcoin up about 28% in August before a correction triggered by the latest inflation data.
Wednesday's PCE data release brought market attention back to interest rates. Higher inflation could push up bond yields and strengthen market expectations of tightening monetary policy, both of which could weaken investor demand for volatile assets.
This market reaction also followed the previous rules. Even when the consumer price index (CPI) report in July showed cooling inflation, Bitcoin struggled to maintain its gains, indicating that macroeconomic data alone does not determine Bitcoin's short-term trend.
For new investors, understanding why volatility and the macro environment remain core risk factors when evaluating Bitcoin as a portfolio asset is crucial.
The next test for Bitcoin will be whether the recent breakthrough can be sustained despite stubborn inflation. If Treasury yields continue to rise and market pricing reflects the more hawkish Fed policy path, the $80,000 mark may remain difficult to recover in the short term.
