Bitcoin 
BTCUSD The price recorded a 3.8% decline after Wall Street opened on August 14, as markets reacted to the release of the July Consumer Price Index (CPI) in the United States and its impact on interest rate cuts in 2024.
Data from Cointelegraph Markets Pro and TradingView shows that Bitcoin price fell from a high of $61,809 to an intraday low of $58,883 in just three hours.
This decline was accompanied by a 5% increase in daily trading volume to $32.12 billion, suggesting that sell-side activity was increasing.
Let’s look at the factors that are driving the Bitcoin price down today.
Consumer Price Index (CPI) leads to sudden 4% drop in Bitcoin price
Bitcoin lost $3,000 in hours as July’s Consumer Price Index (CPI) showed inflation rising at the rate expected by the market.
According to an official press release from the US Bureau of Labor Statistics, inflation rose 0.2% month-on-month in July, after declining 0.1% in June. The annual rate rose to 2.9%, compared to estimates of 3% and 3% in June.
“The index for all items rose 2.9 percent in the 12 months to July, the smallest 12-month increase since March 2021. The index for all items excluding food and energy rose 3.2 percent in the last 12 months, representing the smallest 12-month increase in that index since April 2021.”
The result was a plague for risky assets, including cryptocurrencies, which had been trending upward ahead of the CPI number, which had become classic behavior for Bitcoin and other cryptocurrencies.
Now, market participants are turning their attention to the Federal Reserve’s Open Market Committee (FOMC) meeting on September 18, when the first interest rate cut since March 2020 is expected. According to CME’s FedWatch tool, traders estimate the probability of a rate cut between 0.25% and 0.5% in September at 100%.
Fears of recession weigh on Bitcoin price
In response to recent events, capital markets commentator The Kobeissi Letter wrote that the CPI figure marked the “first month since March 2021 with CPI inflation below 3.0%.”
“The question now is whether or not the Fed can prevent a recession.”
On August 5, Bitcoin experienced a flash crash of 15%, falling below $50,000 to levels not seen since February 2022. This correction was fueled by global recession fears, particularly in the United States amid a weakening labor market.
“Market expectations have shifted significantly toward further cuts over the past week amid expectations of economic weakness,” the Kobeissi Letter said in a follow-up to X on August 14.
Data from Goldman Sachs shows that interest rate futures now price in eight Fed rate cuts over the next 12 months. Notably, this is the most rate cut forecasts since the 2008 financial crisis.
The Kobeissi letter explains that over the past 60 years, every time the market expected a 2% interest rate cut, a recession in the United States followed within a few months.
As mentioned above, the market expects a 0.5% cut in September and a 43.5% probability of a 1% decline in December, a significant increase from the 0.25% cut expected in April for 2024.
“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 the decline in Bitcoin price on August 5 still poses a major risk to the pioneer cryptocurrency.
With ongoing recession fears in the US and the continued unwinding of carry trades, Bitcoin investors have opted for a risk-off stance, which explains the ongoing correction in BTC price.
Bitcoin long liquidations are increasing
Market makers often take advantage of major macroeconomic events to liquidate Bitcoin traders. Bitcoin’s drop to $58,883 coincides with a strong move in the BTC futures market.
Data from Coinglass shows that over $22.26 million worth of long positions in BTC were liquidated on August 14, with the daily count still ongoing at the time of publication. Over $25.94 million worth of long positions in BTC were liquidated in the last four hours. Total liquidations in the crypto market amounted to $143.66 million – of which $85.6 million were long liquidations.
Typically, liquidations of long positions occur when the price of the asset being traded suddenly drops. This is because traders who were optimistic about the asset and had opened long positions suffer losses as the market has moved against them.
Bulls should keep an eye on a possible drop to $58,700, where more than $91.27 million bid orders lie.
This article does not contain investment advice or a recommendation. Every investment and trading decision involves risk and readers should conduct their own research in making their decision.
