- Bitcoin price dropped below $50,000 after higher than expected US inflation data raised concerns that the Federal Reserve will continue raising interest rates, sending cryptocurrencies and stocks falling.
- Investor optimism that the Fed would start cutting rates this year had fueled a rally in Bitcoin and tech stocks, with Bitcoin rising above $50,000 on Monday before retreating after the inflation data.
- Although the SEC’s approval of spot Bitcoin ETFs brought more investors into the market, macroeconomic factors like interest rates remain a key influence on Bitcoin’s price, and rate hikes could create headwinds for further gains.
The price of Bitcoin dropped below $50,000 on Tuesday after higher-than-expected US inflation data dashed hopes that the Federal Reserve will lower interest rates anytime soon. The news sent cryptocurrencies and stocks falling as investors pondered the impacts on monetary policy.
Bitcoin Price Drops Along With Stocks
Bitcoin’s price declined by 2% over 24 hours, trading around $48,747 according to CoinGecko. The drop came after a US Labor Department report showed inflation rose 6.4% in January from a year earlier, exceeding economists’ forecasts. In response, risk assets including US stocks fell, with the S&P 500 and Nasdaq indexes both down 1% in morning trading.
Investor Optimism Fades as Rate Hikes Loom
High interest rates have kept investors away from cryptocurrencies and tech stocks in recent months. However, the Fed has signaled it would start cutting rates this year, fueling a rally in digital assets and equities. On Monday, Bitcoin rose above $50,000 for the first time since December, touching $50,256 before retreating. The boost came as large investors poured money into newly approved Bitcoin exchange-traded funds (ETFs).
SEC Approves Spot Bitcoin ETFs
The Securities and Exchange Commission approved 10 spot Bitcoin ETFs in January after a decade of rejections. The ETFs trade on stock exchanges, opening cryptocurrency exposure to mainstream investors. Despite Tuesday’s decline, Bitcoin remains up 14% over the past week.
Conclusion
While Bitcoin led the way down for cryptocurrencies, the inflation data serves as a reminder that macroeconomic factors can quickly sway market sentiment. With higher rates on the horizon, Bitcoin’s path to new highs could face strong headwinds in the months ahead.
