Bitcoin exploded to $25,000 on Thursday, but failed to maintain that momentum. The loss of that upward momentum seems to lie mainly in the strong economic data from the United States, which makes it possible for the Federal Reserve (central bank) to raise interest rates further.
Need more rate hikes
Bitcoin’s rebound, which briefly pushed the price above $25,000, was mainly driven by rising optimism about inflation and the economy. Yesterday, that hope disappeared after the Producer Price Index (PPI) rose by 0.7 percent in January compared to December. That rise in inflation for manufacturers is telling the market that the Federal Reserve has not yet succeeded in its mission to bring inflation under control.
St. Lous Federal Reserve President James Bullard shared on Tuesday that he supports a rate hike of 0.50 percent in March. Cleveland Fed President Loretta Mester also wants bigger rate hikes and is on the same line as Bullard.
In that respect, there seems to be a chance that we will switch from interest rate increases of 0.25 percent to 0.50 percent. The market hadn’t counted on that, so the prices of risk assets took a significant hit. Bitcoin, among others, made a shift as a result of this new information.
The rest of the market will follow
It wasn’t just Bitcoin that took a hit, by the way. The entire crypto market went down in the same way. Ethereum jumped above USD 1,700 yesterday and is currently back at a price of USD 1,655. The traditional financial markets were also hit by the macroeconomic data. The Nasdaq, the S&P 500 and the Dow Jones Industrial Average, the largest American stock indices, fell by more than 1 percent.
Investors are particularly concerned about the strong job market, which indicates that inflation will not simply disappear. It’s hard to paint a very bullish picture for the markets right now, despite 2023 having started so well so far. All eyes are now mainly on the Federal Reserve, which will take another interest rate decision for the US market in March.
