Bitcoin (BTC) – the world’s largest cryptocurrency by market capitalization – retreated from its latest record high earlier today following reports that inflation in the United States last month was higher than expected.
The price of the leading digital asset dropped about 4% to $68,631 overnight after having touched a new all-time high of almost $74,000 just the day before.
Bitcoin and Stocks Fall as US Inflation Figures Come in Hot
On Thursday, March 14th, data from the US Labor Department’s Bureau of Labor Statistics showed that the producer price index jumped 0.6% in February. This figure was expected to rise by just 0.3%, indicating that inflation is here to stay for quite some time.
The producer price index measures the change in prices of items after they leave a manufacturer. It is a key indicator of inflation.
Meanwhile, the stock market failed to make positive moves and has since dipped. The S&P 500 is down 0.2%, the tech-heavy Nasdaq has fallen nearly 0.2%, and the Dow Jones Industrial Average dropped by about 0.3%.
US equities are usually considered “risk assets” and tend to drop when the inflation numbers are hot.
Investors expected the Federal Reserve to cut interest rates on the dollar in May. However, the chances of that happening are now grim as the central bank is more likely to keep them where they are if inflation does not come down any time soon in the world’s largest economy.
Bitcoin’s Surge Linked to Record Trading Volumes of Spot BTC ETFs
Bitcoin and the wider crypto market have risen roughly 60% so far in 2024. This remarkable surge can be attributed to the approval of the spot Bitcoin exchange-traded funds (ETFs) in the US, which allow retail and institutional investors to get exposure to the cryptocurrency without actually having to go through the cumbersome process of buying and storing it.
The ETFs have amassed huge inflows and trading volumes since their launch. Net inflows just this week for the 10 ETFs passed the $1 billion mark. The funds collectively hold over $60 billion worth of Bitcoin in assets under management (AUM). To date, about $11.6 billion in net inflows have been dedicated to the BTC-focused exchange-traded funds.
In an interview with Bloomberg TV, the chief investment strategist at Bank of America, Michale Hartnett, said the markets are showing the characteristics of a bubble as the tech stocks and cryptocurrencies are surging to all-time highs.
His comment fed into concerns that Wall Street has about the markets being vulnerable to a possible pullback.
Tony Sycamore, a market analyst at IG Australia, wrote in a note that Bitcoin was “undercut” by the rise in US yields and the US dollar that is tracking the hot producer-price inflation data.
US Fed Expected to Make a Decision on Interest Rates on Wednesday
The dollar index – a metric that measures the US currency against six major peers, including the yen, euro, and pound sterling – rose 0.1% to 102.83. The index is up around 1.5% this year on the back of data showing that the US economy remains strong, resulting in investors reigning in on rapid and deep cuts to interest rates.
The Federal Reserve is expected to announce its new interest rates on Wednesday, March 20th, followed by the Bank of England on Thursday, March 21st.
At press time, Bitcoin (BTC) is trading at $67,525 – down 7.6% in the last 24 hours.
