According to CoinDesk, after accurately predicting a bullish outlook for Bitcoin (BTC) over the past few months, the Head of Research at Bitwise Europe adjusted his outlook for Bitcoin last week to be cautious, warning of potentially larger declines in the coming weeks.
Bitcoin will continue to face headwinds in the coming weeks
According to market data, Bitcoin fell 8.8% last week to the $95,000 level, marking the largest weekly decline since August. According to previous reports from Zombit, this drop was due to the Federal Reserve hinting that the number of interest rate cuts next year might be reduced, emphasizing that it is not allowed to hold Bitcoin and has no intention of changing relevant laws.
The so-called hawkish interest rate forecasts have similarly shaken the sentiment in traditional financial markets, leading to a 2% drop in the S&P 500 index, while the dollar index rose 0.8%, reaching its highest level since October 2022. The 10-year U.S. Treasury yield, considered a risk-free rate, increased by 14 basis points, showing further bullish trends in its technical formation.
According to Andre Dragosch, Head of Research at Bitwise Europe, this risk-averse sentiment may continue for some time. Andre Dragosch stated in an interview:
"The overall macro situation indicates that the Federal Reserve is in a dilemma; despite three consecutive rate cuts since September, financial conditions continue to tighten. Meanwhile, according to Truflation's U.S. inflation indicators, the real-time consumer price inflation data has accelerated again in recent months, reaching new highs."
Andre Dragosch believes that Bitcoin may continue to face downward pressure in the coming weeks, but considering the sustained tailwinds from Bitcoin supply shortages, this could be an interesting buying opportunity.
Will inflation repeat the patterns of the 1970s?
On the other hand, Andre Dragosch pointed out that the persistently high CPI inflation data in recent months has raised concerns for the Federal Reserve, fearing a potential second wave of inflation, which has made them more cautious on the issue of rate cuts.
"They may be concerned about a repeat of the dual-peak inflation scenario from the 1970s, which is why they are hesitant to make significant rate cuts. They worry that if they cut rates too aggressively, it could lead to a rapid acceleration of inflation; but if they do nothing, the economy could suffer severely."
However, Dragosch added that as yields rise and the dollar index climbs, the resulting financial tightening will ultimately compel the Federal Reserve to take action. He emphasized that the scarcity of Bitcoin's supply will be an important bullish factor supporting its price in the long term.
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