Bitcoin prices fell today after new U.S. inflation data left investors wondering how long the Federal Reserve’s rate hikes will last.

The bullish momentum that drove Bitcoin’s price initially to 2023 highs of $25,000 on February 16 and February 20 appears to have waned. The pause in bullish momentum appears to be related to higher-than-expected U.S. inflation data, the possibility of continued interest rate hikes by the Federal Reserve, and significant long unwinding.​

The Bitcoin price squeeze comes after a broader market decline, with analysts concerned that the crypto market continues to face considerable danger from the U.S. Federal Reserve’s interest rate decision.

Let’s take a closer look at the factors affecting Bitcoin’s price today.

Stocks fall on high inflation data

Stocks and Bitcoin plunged after the Bureau of Economic Analysis (BEA) released its personal consumption expenditures (PCE) report on Feb. 24, which showed inflation rising 5.4% in January from the previous year. Compared to January 2022, core inflation, one of the Federal Reserve’s favorite tools for measuring inflation, rose 4.7%.

Although the correlation between Bitcoin and stocks hit its lowest level since 2021 on February 22, Bitcoin prices remain closely correlated with stocks and the stock market. Investors have previously expressed strong concerns about an impending recession in the U.S. economy.

While some analysts believe that Bitcoin’s current price represents a generational buying opportunity at current levels, others believe that BTC’s close correlation with the U.S. Dollar Index (DXY) and stocks is reflected in price weakness to maintain the $24,000 level.

Bitcoin prices reflect the widespread market expectation that inflation has not yet been brought under control, which will lead the Federal Reserve to continue raising interest rates.

Rising interest rates in the U.S. and abroad weigh on Bitcoin prices

The PCE report is the Fed’s favorite tool for measuring inflation. Given that Fed Chairman Powell’s overall inflation target remains at 2%, further rate hikes are expected. Inflation has always been a decisive factor in raising interest rates. To fight inflation, Chairman Powell may not be able to turn to an aggressive rate hike strategy.

The PCE report led to speculation that the FOMC meeting on March 22 could result in a 0.5% rate hike.

Against the backdrop of continued strong inflation, some analysts believe that Bitcoin is heading for a cold winter and prices may continue to fluctuate leading up to the Federal Open Market Committee announcement.

On February 24, over $95 million worth of Bitcoin longs were liquidated in a five-hour period. When BTC longs are liquidated without buying pressure from trading volume, the Bitcoin price is negatively impacted. Although China’s recent monetary easing has injected $92 billion in liquidity into the Chinese economy, this has not prevented BTC longs from being liquidated.

Is there a chance for a Bitcoin price reversal?

On January 23 and January 24, the Bitcoin futures market saw $230 million in long position liquidations. This put further pressure on the BTC price. When BTC longs are liquidated without buying pressure in terms of volume, the Bitcoin price is negatively impacted.

The recent rise in Bitcoin trading volume may be due to Binance’s removal of transaction fees. Vetle Lunde, senior analyst at Arcane Research, speculated based on the data:

“However, trading volume remains concentrated on Binance after the exchange removed trading fees. Volume on other spot exchanges is below the January peak of $680 million, as Binance still accounts for 95% of daily BTC spot trading volume.”

If this is the case, it means there is not much buffer against further downside buying pressure from Bitcoin long liquidations. With the recent action by the U.S. Securities and Exchange Commission ( SEC ) against Binance, more assets are flowing out of the exchange.

Short-term uncertainty in the crypto market does not appear to have changed the long-term outlook of institutional investors. According to Robin Vince, CEO of Bank of New York Mellon, a poll commissioned by the bank found that 91% of institutional investors are interested in investing in tokenized assets in the coming years.

CME is the primary vehicle for institutional investors to gain exposure to Bitcoin, and its dominance has grown in 2023. Since February 17, open interest in CME Bitcoin futures has increased by 8,000 BTC.

Data shows that CME BTC options also represent the majority of Bitcoin open interest

Futures premiums are rising, with CME’s basis at 8.7%, the highest since November 2021, above offshore futures’ 6.3%. CME also accounts for 68.2% of the BTC futures market, excluding perps. Throughout the year, the dominance of offshore futures has steadily declined.

In the short term, concerns are high that Bitcoin prices are directly affected by macroeconomic events, and potential rate hikes by the next FOMC may also have some impact on BTC prices.

In the long term, market participants still expect bitcoin’s price to rise, especially as more banks and financial institutions appear to be turning to digital cash for settlements amid the chaos.

C3 Tip: This article does not contain investment advice or recommendations. Every investment and trading involves risk, and readers should conduct their own research when making a decision.