Bitcoin has crashed this year, falling by more than 50% from its peak of $126,000 per bitcoin in October last year (even as traders eye a “glorious” Elon Musk game-changer).
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The bitcoin price has plunged toward $60,000 per bitcoin this week, just above its recent lows, with some Wall Street analysts predicting bitcoin could be about to take a big step lower.
Now, as traders fear the bitcoin house of cards could be collapsing, the market is braced for the Federal Reserve’s preferred measure of inflation to cement an interest rate hike later this year.
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"In a thin book, this week’s catalysts could hit harder," Dessislava Ianeva, an analyst with crypto platform Nexo, said in emailed comments, pointing to the continued pressure on energy markets due to the U.S. war in Iran shutting the Strait of Hormuz oil shipping lane.
On Thursday, the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE), is expected to show core PCE rose to 3.4% year-over-year in May, outpacing most other core inflation measures and well above the Fed's 2% target.
“Thursday’s PCE and any Hormuz development could generate a sharper move than the range implies. A hawkish PCE surprise reinforces the post-FOMC dollar bid, the most consistent headwind for bitcoin since the June meeting," Ianeva said.
Traders have ratcheted up their bets on higher interest rates this year, with a near-70% chance of a September hike, according to the CME FedWatch Tool.
"This week’s U.S. inflation data could prove decisive," Konstantinos Chrysikos, head of customer relationship management at brokerage Kudo, said in an emailed note. "Should inflation remain persistent, expectations for future tightening could be reinforced, supporting bond yields and creating an even less favourable environment for non-yielding assets such as bitcoin."
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However, while many are focused on the Fed’s interest rate path, others think bitcoin’s biggest driver is bitcoin exchange-traded fund (ETF) flows.
“The primary narrative for traders this week, however, isn’t the Fed; it’s the ETF tape,” Mike McCluskey, cofounder of crypto tokenization platform TX, said in emailed comments.
“We are witnessing a record 30-day net outflow exceeding $6 billion across the spot bitcoin ETF complex. This isn't a momentary dip, but rather a sustained period of institutional de-risking from the very cohort that has driven much of this cycle's momentum. Until this flow data demonstrates a definitive reversal, any relief rallies are likely to find a hard ceiling, regardless of intraday volatility in the spot market.”