Bitcoin (BTC) price witnessed a 3.8% drop after Wall Street opened on Aug. 14, as markets reacted to the July Consumer Price Index (CPI) print in the United States and its implications for interest rate cuts in 2024.
Data from Cointelegraph Markets Pro and TradingView reveals that Bitcoin price dropped from a high of $61,809 to reach an intraday low of $58,883 within just three hours.
This drop was accompanied by a 5% increase in daily trading volume to $32.12 billion, suggesting that the sell-side activity was intensifying.
Let’s look at the factors driving Bitcoin price down today.
CPI fuels sudden 4% Bitcoin price drop
Bitcoin lost $3,000 in hours as the July print of the CPI report showed inflation rising at a rate that the market expected.
According to an official press release from the US Bureau of Labor Statistics, month-on-month inflation increased by 0.2% in July after declining 0.1% in June. The year-on-year rate climbed to 2.9%, compared to estimates of 3% and June’s 3%.
“The all items index rose 2.9 percent for the 12 months ending July, the smallest 12-month increase since March 2021. The all items less food and energy index rose 3.2 percent over the last 12 months and was the smallest 12-month increase in that index since April 2021.”
The result was a scourge for risk assets, including crypto, which had trended higher in the run-up to the CPI reading in what had become classic behavior for Bitcoin and other cryptocurrencies.
Now, market participants turn their focus to the Sept. 18 meeting of the Federal Reserve’s Federal Open Market Committee (FOMC), which is expected to deliver its first interest rate cut since March 2020. According to the CME\'s FedWatch tool, traders are placing the odds of a rate cut of between 0.25% and 0.5% in September at 100%.
Recession fears weigh down Bitcoin price
Reacting to the latest events, capital markets commentator The Kobeissi Letter said that the CPI print marked the “first month with CPI inflation below 3.0% since March 2021.”
“Now, the question becomes whether the Fed can avoid a recession or not.”
On Aug. 5, Bitcoin experienced a 15% flash crash, dropping below $50,000 to levels not seen since Feb. 2022. This correction was fueled by global recession fears, particularly in the United States amid a weakening labor market.
“Market expectations have sharply shifted over the last week toward more cuts in anticipation of economic weakness,” declared The Kobeissi Letter in a follow-up X post on Aug. 14.
Data from Goldman Sachs reveals that interest rate futures are now pricing in eight Fed rate cuts over the next 12 months. Notably, these are the most interest rate cut forecasts since the 2008 financial crisis.
The Kobeissi Letter explained that over the past 60 years, every time the market expected a 2% rate cut, a recession in the US followed within a few months.
As mentioned earlier, the market expects a 0.5% cut in September and a 43.5% chance of a 1% decline in December. This is a significant increase from the just one 0.25% reduction expected in 2024 in April.
“Interest rate futures are pricing in a recession.”
Meanwhile, researchers at Global Markets Investor believe that the unwinding of the Japanese yen carry trade that contributed to Bitcoin’s drawdown on Aug. 5 still poses a major risk to the pioneer cryptocurrency.
As US recession fears linger and the carry trade unwinding continues, Bitcoin investors have decided to adopt a risk-off attitude, explaining the ongoing correction in BTC’s price.
Bitcoin long liquidations ramp up
Market makers often take advantage of major macroeconomic events to liquidate Bitcoin traders. Bitcoin’s dip to $58,883 coincides with a sharp movement in the BTC futures market.
Data from Coinglass shows that more than $22.26 million in BTC long positions were liquidated on Aug. 14, with the daily tally continuing at the time of publication. More than $25.94 million long BTC positions have been liquidated over the last four hours. The total liquidations across the crypto market amounted to $143.66 million—$85.6 million were long liquidations.
Typically, long liquidations occur when the price of the asset being traded suddenly drops. This is because traders who were bullish on the asset and had opened long positions face losses since the market has moved against them.
Bulls should keep an eye on a potential dip to $58,700, where more than $91.27 million bid orders lie.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.