Bitcoin Price Highs Vanish 1-day Later, Here’s Why

Key takeaways:

• BTC futures premium remains neutral, indicating traders were unfazed by the recent $6,630 price drop.

• The Bitcoin options skew and macroeconomic concerns suggest limited appetite for a breakout above $120,000.

Bitcoin (BTC) faced a sharp rejection after reaching a $124,089 all-time high on Thursday. The drop below $117,500 triggered $227 million in leveraged liquidations on bullish positions, though derivatives metrics were largely unaffected by the move.

Are traders overreacting to US inflation data, or is there something within the cryptocurrency market itself preventing a clean break above the $122,000 level?

The BTC futures annualized premium was barely affected by the $6,630 decline. The indicator currently stands at 9%, within the neutral 5%–10% range. This suggests the recent record high was not fueled by excessive leverage and that traders remained relatively calm despite the slide below $118,000. Still, the data hints at a lack of confidence in a rally toward $150,000.

Is higher inflation behind Bitcoin’s crash?

Some might argue that the 3.3% annual rise in the US Producer Price Index (PPI) for July pushed traders to be more risk-averse, as the inflation figure came in hotter than anticipated. The initial negative reaction reflected lower odds of multiple interest rate cuts. However, the S&P 500 eventually erased its intraday losses, indicating that Bitcoin’s sharp correction was likely driven by other factors.

According to the CME FedWatch tool, the implied probability of the Federal Reserve trimming rates to 3.75% or lower by January 2024 now stands at 61%, compared with 67% one week earlier. This signals reduced confidence in aggressive monetary easing, a backdrop that tends to weigh on risk assets such as Bitcoin.

Traders appear to have reacted negatively to US Treasury Secretary Scott Bessent’s remarks that the government has no plans to expand Bitcoin purchases for its Strategic Reserve. 

In an interview with Fox Business, Bessent also dismissed the idea of reallocating proceeds from a potential reevaluation of Treasury gold into Bitcoin. That message ran counter to market expectations, since the Executive Order signed by US President Donald Trump in March specifically cited “budget-neutral strategies for acquiring additional Bitcoin.”

Bitcoin options market shows resilience

To understand if Bitcoin…