Crypto

Bitcoin Drops 2.5% to $68K as Traders Await CPI, Fed Decision

Bitcoin drops 2.5% to $68,000 as traders brace for CPI report and Fed decision.

By Barry Stearns

6/10, 23:39 EDT
Bitcoin / U.S. dollar
Bitcoin / US Dollar
ethereum USD
GameStop Corporation
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Key Takeaway

  • Bitcoin fell 2.5% to $68,000 amid trader anxiety over upcoming US inflation data and the Fed's monetary policy decision.
  • Smaller cryptocurrencies like Ether and Dogecoin also experienced losses, reflecting broader market uncertainty.
  • Bitcoin's struggle for new highs since its March peak of $73,798 highlights the challenging environment for speculative assets.

Bitcoin's Pre-Fed Jitters

Bitcoin experienced a notable wobble on Tuesday, reflecting trader anxiety ahead of crucial US inflation data and the Federal Reserve's upcoming monetary policy decision. The largest digital asset slid as much as 2.5% to a one-week low before stabilizing at $68,000 as of 10:42 a.m. in Singapore. This decline was mirrored by other cryptocurrencies, with Ether and Dogecoin also nursing losses.

Bitcoin had previously hit a record high of $73,798 in March, buoyed by inflows into dedicated US exchange-traded funds. However, it has struggled to reach new highs since then. The upcoming inflation data and the Fed's outlook on Wednesday are expected to cement fears that interest rates will remain elevated for an extended period, creating a challenging environment for speculative assets like cryptocurrencies.

Anand Gomes, co-founder of the derivatives platform Paradigm, commented on the market's sensitivity to news, stating, "No news is bad news in crypto. The market is like a junkie that constantly needs bullish news to stay up. So when there is none, the path of least resistance is lower."

Anticipated Volatility from Fed and CPI

Traders are bracing for heightened volatility due to Wednesday's dual macroeconomic events: the consumer price index (CPI) report in the morning and the Federal Reserve's rate decision in the afternoon. According to Stuart Kaiser, Citigroup Inc.'s head of US equity trading strategy, the options market is betting that the S&P 500 Index will move 1.25% in either direction on that day. This would be the largest implied swing ahead of a Fed decision since March 2023.

Kaiser noted that over the past year, markets have typically priced CPI and Fed days similarly at 0.75% each on average. Doubling them up makes it a bigger event and raises uncertainty. He added that the S&P 500 moved 0.8% on average following each event in the past year, with Fed days generally being more profitable for option buyers than CPI days.

While markets broadly expect the Federal Reserve to hold rates steady, the inflation print and Fed Chair Jerome Powell's press conference will provide more clarity on potential interest rate cuts this year. The labor market has remained strong, with US job growth soaring in May. Nonfarm payrolls advanced by 272,000, surpassing the expected 185,000. Traders are comfortable with job creation above 150,000, but a slide below that could shift market focus from inflation to hiring.

Market Reactions and Leverage Flush

Bitcoin and Ether remained relatively unchanged over the weekend following a $400 million leverage flush on Friday, which dampened market momentum. Analysts at Presto Research expect market volatility to return this week due to macroeconomic catalysts such as the CPI release, the FOMC meeting, and Janet Yellen's speech.

The record leverage build-up on Bitcoin futures cost bulls dearly as the market plunged on Friday following the release of stronger-than-expected non-farm payrolls (NFP) figures. The US economy added 275,000 jobs, significantly higher than the expected 185,000, causing Bitcoin to drop from $71,000 to $69,000.

The slide in meme stock GameStop (GME) also weighed on riskier assets, with major meme coins like Dogecoin and Shiba Inu losing as much as 10%. Since Friday, open interest in futures contracts across various tokens has dropped from $99 billion to $60 billion, indicating that traders have significantly pared their bets. Trading volumes fell by 10% in the past 24 hours, according to Coinglass data.

As of early European hours on Monday, Bitcoin traded just over $69,400, while Ether was around $3,660. Other cryptocurrencies like Solana (SOL) and XRP showed slight losses, and BNB Chain’s BNB tokens lost 5.5% as traders likely took profits following a rise to a lifetime peak of over $710 last week. Cardano (ADA) was slightly up on Monday following confirmation of a technical event that could affect the fundamentals of the network and its token.

Street Views

  • Anand Gomes, Paradigm (Bearish on the crypto market):

    "No news is bad news in crypto. The market is like a junkie that constantly needs bullish news to stay up. So when there is none, the path of least resistance is lower."