Bitcoin Correction: US Inflation Fears Drive Price Drop
Bitcoin recently experienced a significant drop below the $120,000 mark after hitting a new all-time high near $123,000 on July 14. The drop, which saw the price of Bitcoin fall to around $116,894, represents a decline of over 5% in just 24 hours, according to data from CryptoSlate.
Nicolai Sondergaard, a research analyst at Nansen, explained that a price correction was expected following Bitcoin’s strong rally from $108,000 to $122,000. He highlighted significant liquidation activity around the $116,300 level, making it a crucial psychological point for traders to keep an eye on.
Data from Coinglass revealed that over $461 million worth of liquidations occurred in the market during this period. Long traders, who were anticipating further price increases, suffered the most losses, with $383 million in liquidations. On the other hand, short traders lost $78.54 million.
Bitcoin traders who were betting on continued upward momentum incurred the largest losses, totaling over $150 million. Ethereum traders also experienced approximately $10.5 million in liquidations. This widespread liquidation underscores the volatility and risk that traders face in the cryptocurrency space, particularly during significant price corrections.
Market analysts also attributed Bitcoin’s pullback to broader economic conditions in the United States. Bitfinex analysts noted that investors have adopted a cautious approach ahead of the release of the US Consumer Price Index (CPI), which tracks the average price change for goods and services and is a key measure of inflation.
The analysts warned that a higher-than-expected CPI reading could delay Federal Reserve easing, dampen market sentiment, and increase borrowing costs. This scenario could strengthen the dollar and diminish demand for non-yielding assets like Bitcoin, potentially extending the pullback by another 5-10%.
Conversely, a softer CPI reading could shift the market narrative, particularly if headline inflation drops below 2.5% and core trends toward 2.9%. In May, a cooler CPI print resulted in a sharp rally in both equities and crypto assets. A similar outcome could push Bitcoin back towards $120,000 and beyond, especially if ETF inflows remain strong.
Overall, the recent price correction in Bitcoin underscores the influence of broader economic factors on the cryptocurrency market and the importance of monitoring key indicators such as inflation data. Traders and investors will be closely watching upcoming economic reports to gauge the potential impact on Bitcoin’s price movements in the coming days.