Bitcoin’s (BTC) recent price drop to $6,630 has left many investors wondering what triggered the sharp rejection after the cryptocurrency reached an all-time high of $124,089 on Thursday. The decline below $117,500 resulted in $227 million in bullish positions being liquidated, yet the derivatives metrics remained largely unaffected. This raises questions about whether dealers overreacted to the US inflation data or if there are underlying issues within the cryptocurrency market itself that prevented a clean break above the $122,000 level.
The annualized premium of the BTC Futures was hardly affected by the decline, currently standing at 9% within the neutral range of 5% to 10%. This indicates that the recent record high was not fueled by excessive leverage and that dealers remained relatively calm despite the dip below $118,000. However, the data suggests a lack of confidence in a rally to $150,000.
Understanding the Impact of US Inflation Data
The annual increase in the US producer price index (PPI) may have caused dealers to become more risk-averse in July, as the inflation number was hotter than expected. The initial negative reaction reflected the lower probability of multiple interest rate cuts. Nevertheless, the S&P 500 eventually erased its intraday losses, suggesting that the sharp correction in Bitcoin was likely driven by other factors.
According to the CME FedWatch tool, the implicit probability that the Federal Reserve will trim rates to 3.75% or lower by January 2024 now stands at 61%, compared to 67% a week earlier. This signal has lowered confidence in aggressive monetary easing, a backdrop that tends to favor risk assets like Bitcoin.
Bitcoin Options Market Shows Resilience
To understand whether Bitcoin traders expect further downside, it’s essential to evaluate the BTC options delta skew. A higher cost of put options (sales) usually indicates a bearish market, which means the indicator moves above the neutral 6% threshold.
The Bitcoin options are currently at 3%, indicating balanced risk prospects that match a healthy market. It’s crucial that traders have shown resilience, even when Bitcoin failed to hold above $120,000. This does not signify confidence in a persistent rally but shows little fear of a renewed test of the $110,000 support level.
Investor Sentiment and Market Outlook
Since US stocks erased most of their losses after the latest inflation publication, Bitcoin traders will likely use the switch to all-time highs to take profits. The more comprehensive concern seems to be due to macroeconomic conditions, especially with the US government debt exceeding the $37 trillion milestone. Bitcoin is still well-positioned for potential gains in 2025, supported by central banks extending their balance sheets to offset budget imbalances. However, enthusiasm for a decisive breakout above $120,000 appears limited, judging by the muted activity in derivative markets.
This article is for general information purposes only and should not be considered as investment or legal advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph. For more information on Bitcoin’s market analysis, visit https://cointelegraph.com/news/bitcoin-s-all-time-high-gains-vanished-hours-later-here-s-why.
