Bitcoin’s Unexpected Dive: Interplay of Fed’s Inflation Concerns, Bearish Traders and Falling Yields

Image of an anxiously watched stock ticker displaying a dramatic fall in the price of Bitcoin, the gloomy atmosphere heightened by a shadowy room, enhanced with an expressionistic style hinting at uncertainty. Suggest subtle rays of weak sunshine representing slight optimism amidst all the suspense.

On August 16, the price of Bitcoin closed under $29,000 for the first time in over eight weeks which came off as quite a surprise to market analysts. Many suggested the recent FOMC minutes expressing concerns about inflation and the potential to increase interest rates were potential reasons for the drop. However, bearish traders were favored by the impending expiration of $580 million Bitcoin options on Friday, adding further to the downward pressure on Bitcoin. This further complicates the cryptocurrency’s search for a floor.

While Federal Reserve Chair Jerome Powell’s remarks on the 2% inflation target did lead to the U.S. 10-year Treasury yields reaching their peak level since 2007, the impact on traditional markets was minimal. This happened despite the shift of investors away from riskier assets such as cryptocurrencies and favoring cash positions and companies better prepared for such situations.

On August 16, prior to the release of the Federal Reserve minutes, Bitcoin had already suffered a fall to $29,000, marking a nine-day low. The fact that the 10-year yield had been rising indicated skepticism about the Federal Reserve’s ability to manage inflation. This drop in price of Bitcoin, along with concerns arising from China’s reported lower-than-expected retail sales growth and fixed asset investment, could potentially be affecting cryptocurrency demand.

On the flip side, traders using options contracts were optimistic as the price of Bitcoin momentarily passed the $29,700 mark between August 8 and August 9. However, this optimism swiftly reversed with the recent drop in Bitcoin price under $29,000, catching the bulls off guard.

With the current scenario, it seems that Bitcoin bears will sustain their advantage. Given the growing concerns among investors about a potential economic slowdown due to actions taken by central banks to control inflation, the chances of a spot ETF being approved, a primary short-term goal for Bitcoin bulls, are slim.

For bullish traders, the success of their buy options relies highly on Bitcoin’s expiry price surpassing $28,500. The most likely scenario being that of Bitcoin bears making a favorable outcome of $140 million suggests a potential further price drop for Bitcoin. As it stands, bulls seem to be in a difficult spot with a conceivable incline in Bitcoin’s price correction.

Despite the specific causes of the price drop still remaining somewhat obscure, there’s a chance that Bitcoin could reverse its falling trend after the weekly options expiry on August 18.

Source: Cointelegraph

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