The Bitcoin (BTC) price has plunged over 3% on Wednesday to back below $56,000, snuffing out the majority of what had looked like a promising rally since the start of the week.
The reversal lower in the Bitcoin price comes in wake of the latest US Consumer Price Index (CPI) inflation figures for August.
The CPI rose 0.2% MoM and 2.5% YoY, as expected. However, the Core CPI was a tad hotter than expected, coming in at 0.3% MoM versus a 0.2% expected 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
The data is consistent with the notion that US inflation is trending back towards the Fed’s 2.0% goal.
That means the door remains open for a rate cut from the US central bank later this month.
But the data has pretty much killed the prospect that the Fed might kick off its rate-cutting cycle with a 50bps move.
As per US interest rate futures market pricing per the CME, the implied probability of a 50bps rate cut later this month was last down at 15% from 34% one day ago.
This shift in pricing has weighed on the Bitcoin price and traditional risk assets like US equities.
The S&P 500 dropped 1.4% to just above 5,400, taking monthly losses to more than 4%.
Other bearish catalysts could also be hurting risk appetite and weighing on the Bitcoin price.
Harris Wins Presidential Debate
Democrat Presidential nominee and sitting Vice President Kamala Harris was widely viewed as besting Republican nominee Donald Trump in their debate on ABC last night.
Trump is seen as the more overtly pro-crypto/Bitcoin candidate of the two.
Per the decentralized political betting exchange Polymarket, Trump had a 53% chance of winning the election to Harris’ 45% prior to the debate.
But those probabilities were sat at an even 49% to 49% in the debate’s aftermath.
World's largest prediction market.
Before the debate After the debate pic.twitter.com/p1KjOOFZU1
— i/o (@eyeslasho) September 11, 2024
Hawkish commentary from Bank of Japan officials during the Wednesday Asia Pacific trading session saw the yen hit new yearly highs against the USD.
Yen strength has been a source of angst for risk assets since early July.
The prospect of rate hikes in Japan is putting pressure on the crowded pro-risk yen carry trade – where investors borrow in the historically low-interest rate yen to fund riskier bets elsewhere.
BTC Headwinds Build – Where Next for the Bitcoin Price?
Risks to the Bitcoin price remain tilted to the downside.
A Kamala Harris presidency might not actually be a bad thing for the broader crypto sector – her campaign has signaled an openness to reverse the anti-crypto stance of the current Biden administration.
But it certainly wouldn’t be as much as a positive as a Trump presidency, with Trump openly touting the benefits of Bitcoin and pledging to never sell it.
So any developments that swing election odds in favor of Harris will likely hurt Bitcoin sentiment.
Macro could also continue to weigh on the Bitcoin price.
Yes, the Fed is about to kick off a rate-cutting cycle, but concerns that a US recession is near are very high, as well as concerns that the Fed is behind the curve on preventing one.
US macro-economic data, if it continues to paint a picture of economic weakness, is likely to continue hurting the BTC price.
Meanwhile, yen strength is likely to continue as more BoJ rate hikes near.
This isn’t a good cocktail for a near-term BTC price rebound.
Technicals are also looking pretty grim.
The Bitcoin price’s repeated failure to break back above its 50 and 200DMAs in August paints a picture of a market where the bears are in control.
Risks remains tilted towards a retest of the August lows under $50,000.
In a worst-case scenario, where the US slips into recession, Harris wins the US Presidential election and yen strength continues to ramp up, the Bitcoin price could even dip as low as $40,000.
Buy the Dip?
This would be a great opportunity for long-term investors who believe in Bitcoin’s long-term adoption story.
Also, if US interest rates are heading back to the 2% region, or lower, a more favorable liquidity backdrop will almost certainly be a major long-term tailwind for the BTC price.
A $100,000 Bitcoin price at some point in 2025 remains very likely.