Bitcoin and the entire cryptocurrency market are experiencing a minor downturn over the past 24 hours, leaving investors wondering what is behind the drop. Bitcoin briefly rose to $31,009 before falling to $30,254 within a few hours. Ethereum (ETH) rose to over $1,900 but fell back to $1,868.

CPI data and interest rate hike expectations

A key piece of the puzzle lies in the recent Consumer Price Index (CPI) data. Yesterday’s June CPI data surprised on the upside, with the headline CPI falling to 3.0% year-over-year, below expectations of 3.1%. More encouraging was the core CPI falling to 4.8% year-over-year, beating market expectations of 5.0%.

However, this did not significantly change the market's view on the Fed's decision to raise interest rates at the end of the month. According to the CME FedWatch tool, the market still expects the Fed to raise interest rates by 25 basis points at its next meeting on July 25-26, with a probability of 93%. Well-known macro analyst Ted (@tedtalksmacro) is among the few who think there will be no further rate hikes. Ted shared the chart below and wrote: 3 million annualized core CPI is currently at the level of October 2021. Trends are a friend of the Fed. It is difficult to see another rate hike this month.

However, other analysts believe that the core personal consumption expenditures price index (PCE) is more important to the Fed. In the latest FOMC minutes, PCE was mentioned 10 times, while CPI was mentioned three times. The Fed's preferred inflation measure for June will not be released until July 28.

US Government Sells Bitcoin

However, it is worth noting that traditional markets are hitting new highs following the positive inflation data. The S&P 500 rose 0.74% yesterday to its highest level since April 2022. Meanwhile, Bitcoin was unable to sustainably break above $31,000 in its sixth attempt.

The reason could be the news that the US government is moving 9,800 Bitcoins associated with the infamous Silk Road market. The news came shortly after the release of the Consumer Price Index (CPI), which hit market sentiment very hard. In the past, news that the US government is taking action and may sell some of its Bitcoins has always triggered a sharp drop in prices. Yesterday's drop can still be considered mild and an indicator of market strength.

So far, there has been only speculation about the US government’s plans. It is known that the US intends to liquidate seized Bitcoins. The last time this happened was in March. At that time, 9,861 Bitcoins were sold. However, these transfers can also only be used to reorganize Bitcoin holdings.

BTC stuck in range

Additionally, market activity itself plays a major role. Traders are actively engaging in strategies such as longs at the bottom of Bitcoin’s current range and shorts at the top. As analyst Skew aptly noted, “most people are playing well in the range, hedging near the range highs and going long near the range lows.”

This trading behavior creates a dynamic environment where short-term price action can be influenced by the actions of traders seeking to take advantage of market volatility. Tilt added:

BTC Total CVD and Delta is still a very derivatives driven market but lack of spot participation = chopping and dicing. Decent long sweep is around $30,200 + demand between current price and $30,000. A take profit or short covering rally could happen later today.

At press time, BTC is trading at $30,431, comfortably staying in the trading range between $29,800 and $31,300.