Bitcoin experienced a decline to a one-week low in volatile trading on Friday, driven by profit-taking after reaching a record high and in response to an unexpected increase in U.S. inflation. The cryptocurrency fell over 5% during the Asian session, hitting a low of $66,629.96, before partially recovering to trade 3.5% lower. This fluctuation came on the heels of Bitcoin reaching a new all-time high of $73,803.25 earlier in the week for the fourth consecutive day.
According to Matt Simpson, senior market analyst at City Index, Bitcoin has a history of becoming highly volatile after hitting record highs. The recent surge in Bitcoin’s price was also impacted by the Federal Reserve’s less-than-dovish stance, as indicated by recent economic data. Despite U.S. retail sales rebounding lower than expected in February, producer prices saw a greater than anticipated increase. This data, along with earlier reports of persistent inflationary pressures, led to reduced expectations of an imminent Fed easing cycle.
Impact of Interest Rate Speculation on Bitcoin
Following the release of these economic indicators, the probability of a rate cut in June diminished, with futures now suggesting a 60% chance, down from 74% the previous week. A scenario of higher interest rates, especially in the U.S., tends to have a negative impact on assets linked to market risks, such as cryptocurrencies. Nevertheless, Bitcoin has still maintained a year-to-date increase of nearly 60%, supported by surging interest in crypto products on U.S. spot exchanges and optimism regarding global interest rate trends by the end of the year.
Software company MicroStrategy announced its intention to utilize a convertible bond offering to purchase Bitcoin for the second time in less than two weeks, signaling continued bullish sentiment towards the cryptocurrency. Some market analysts attributed the price fluctuations of Bitcoin on Friday to this news, highlighting the unique characteristics of the cryptocurrency market compared to traditional stocks. Joshua Chu, chief risk officer at Invess, noted the absence of strict regulations in the crypto market, allowing for significant trades by influential individuals or entities, resulting in heightened volatility.
Impact on Other Cryptocurrencies
In addition to Bitcoin, ether, the second-largest cryptocurrency, also experienced a decline to a one-week low, dropping over 4% to $3,670. The broader market response to U.S. inflation data and interest rate speculation has reverberated across various digital assets, reflecting the interconnectedness of the cryptocurrency ecosystem. As investors navigate through evolving market conditions and economic uncertainties, the volatility within the crypto space continues to present both challenges and opportunities for market participants.
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