Market expert says more pain likely after Bitcoin price loses 8%

Head of Europe Research at Bitwise, who was Strictly upward On Bitcoin (BTC) for months, he became cautious after last week’s 8% drop, warning of deeper losses in the coming weeks.

Bitcoin, the leading cryptocurrency by market cap, fell 8.8% to nearly $95,000 last week, the largest percentage decline since August, according to data source TradingView and CoinDesk Indices. Losses came as the Fed He pointed to smaller interest rate cuts for next year while emphasizing that it prohibits the holding of BTC and is not seeking to change the law to do so.

Expectations of tighter interest rates also rattled sentiment in traditional markets, sending the S&P 500 down 2% and the dollar index up 0.8%, lifting it to its highest level since October 2022. Treasury bonds, or the so-called empty rate, rose. of risk, by 14 basis points. It breaks out bullishly Of artistic style.

The risk-off mood may persist for some time, according to Andrei Dragosh, director and head of research for Europe at Bitwise.

“The big macro picture is that the Fed is stuck between a rock and a hard place as financial conditions continue to tighten despite three consecutive interest rate cuts since September. Meanwhile, real-time measures of consumer price inflation have accelerated again over the past months to record levels.” New too Transmission indicator “For inflation in the US,” Dragosh told CoinDesk.

Dragosch is one of the few observers who correctly predicted a massive BTC price surge in late July when sentiment was barely bullish. BTC hit lows near $50,000 at the time and recently surpassed $100,000 for the first time ever.

“So, it’s very likely that we will see more pain in the coming weeks, but this could be an interesting buying opportunity given the ongoing tailwind provided by Bitcoin’s supply deficit,” Dragosh added.

The hardening of Treasury yields, which accounts for rising borrowing costs and the relative attractiveness of fixed-income investments, typically leads to an outflow from riskier assets like cryptocurrencies and stocks. A strong dollar also makes US dollar-denominated assets expensive, discouraging capital flows.

1970s-style inflation?

If you’ve been following financial markets for a while, you’ve probably encountered arguments that price pressures in the US economy are on the same rollercoaster ride as inflation experienced in the 1970s. At that time, the second wave was more severe than the first.

Dragosh notes that flat CPI inflation readings in recent months have raised the Fed’s concerns about a potential second wave, leading to a more cautious stance on interest rate cuts.

“They may be afraid of a double hump scenario and a return of inflation that peaked in the 1970s, which is why they may be very reluctant to cut interest rates more aggressively,” Dragosh said. “They risk a significant acceleration in inflation if they cut interest rates too aggressively, and if they do too little, the economy could suffer.”

However, eventually, the financial tightening caused by rising yields and the dollar index will force the Fed to take action, Dragosh added, highlighting the scarcity of Bitcoin supplies as a key long-term bullish factor.