Bitcoin is plummeting: Inflation and bond yields are affecting digital currency

After reaching a historic peak in December, bitcoin is going through a brutal correction, losing nearly 10% of its value in just a few weeks. This decline cannot be solely explained by a simple market cycle, but also by the backdrop of economic tensions. The persistent high inflation in the US has reduced the maneuverability of the Federal Reserve, delaying hopes for lower interest rates. This situation increases pressure on risk assets, including bitcoin, reducing its attractiveness relative to the rising dollar and increasing bond yields. The upcoming announcement of the Consumer Price Index (CPI) on January 15th may highlight this trend. According to Steno Research, inflation exceeding forecasts could trigger new liquidation conditions, pushing BTC below $85,000. However, the danger does not only come from macroeconomic data. The bitcoin derivatives market is still too hot, pushing excessive leverage to increase volatility. In the context of uncertain economy and fragile speculative positions, cryptocurrencies operate in a volatile area, where every economic announcement can cause a significant fluctuation. Bitcoin Weakens Due to Economic Instability Since mid-December, Bitcoin has trended downwards, dropping from $106,000 to around $96,000. This decline aligns with the backdrop of tense macroeconomic conditions, marked by increasing inflation and tighter monetary policies from the US Federal Reserve. The latest US employment report, released on January 10, highlighted a robust labor market, reinforcing the hypothesis of sustained high interest rates for an extended period. This currency instability has contributed to the strength of the US dollar, putting additional pressure on risky assets, including bitcoin. Zach Pandl, a research director at Grayscale, explains that "Bitcoin seems to be constrained by the strength of the dollar, which is increasing due to tighter Fed restrictions and new tariff threats." Meanwhile, yields on 10-year Treasury bonds continue to rise, reflecting investors' concerns about inflation prospects. Indeed, in the context of not wanting this risk, the upcoming Consumer Price Index (CPI) on January 15th seems to be a determining factor. According to Steno Research, inflation exceeding 0.3% could trigger a new wave of mass sell-offs in the cryptocurrency market, potentially pushing bitcoin below $85,000. Future Market Too Hot, An Additional Risk If the macroeconomic environment weighs heavily on bitcoin, the derivatives market also amplifies selling pressure. Despite the recent correction, open positions on BTC futures contracts are still high, indicating that many investors are using excessive leverage. This situation creates additional risks. In the event that bitcoin prices decline again, mass liquidation can further exacerbate market volatility and deepen the market decline. According to Steno Research, the threshold of $85,000 could be reached if US inflation proves stronger than expected. "A greater divergence in CPI figures could surprise the market and create an additional shock to cryptocurrency prices," analysts explained. The impact of such a scenario will not be limited to cryptocurrencies alone. A stronger dollar and higher bond yields will lead investors to shift away from riskier assets even more. However, this brutal correction will not weaken the long-term price prospects. Steno Research estimates that 2025 could be a record year for bitcoin, driven by lower interest rates, more favorable legal environment, and the traditional post-halving effect. Currently, we advise caution as each new economic data point can redefine the market's trajectory. In the short term, investors face prolonged downward pressure, driven by macroeconomic instability and tense derivatives markets. However, Steno Research predicts a strong recovery in 2025, fueled by a number of catalysts. Lower interest rates, more favorable legal frameworks, and the impact of halving could create favorable conditions for a new price cycle. Analysts estimate that bitcoin could surpass $150,000, reaching a new all-time high. Until then, volatility remains a key factor in the market. In the context of investors adjusting the economy and repositioning their strategies, bitcoin will need to find balance before entering a new expansion phase. Caution is still advisable, as every macroeconomic data point can impact the market trajectory in the short term. DYOR! #Write2Earn #Write&Earn $BTC {spot}(BTCUSDT)