What Happened?
Bitcoin surged to an all-time high of approximately $124,000 on Thursday, with market sentiment extremely optimistic. However, this euphoric rally lasted only a few hours before a series of significant bearish news triggered a chain sell-off, and the price quickly fell below the $120,000 mark.
This abrupt decline was mainly triggered by two key factors: on one hand, the U.S. Treasury Secretary explicitly stated that the government would not be purchasing new Bitcoin, directly breaking market expectations of a “national-level super buyer”; on the other hand, higher-than-expected inflation data (PPI) decreased the likelihood of the Federal Reserve (Fed) cutting interest rates, leading to a withdrawal of funds from risk assets such as Bitcoin.
Bitcoin’s Sharp Drop After Hitting a High: One Statement from the White House + One Report
Bitcoin (BTC) recently broke through all previous resistance levels, reaching a new peak of approximately $124,000. However, Bitcoin did not maintain its new position for long; after touching the historical high of about $124,457, the price plummeted, breaking through the $120,000 mark and several key support levels, dipping to around $117,400 at one point. As of the time of writing, Bitcoin’s price was approximately $119,303.
This wave of intense sell-off was primarily triggered by two negative news items: the policy statement from the U.S. Treasury Secretary and a report on inflation data.
The first turning point in market sentiment came from U.S. Treasury Secretary Scott Bessent’s remarks during an interview with Fox Business. He clearly stated that the U.S. government currently has no plans to expand its strategic Bitcoin reserves through new purchases.
Bessent said, “We have already started entering the 21st century and have established a Bitcoin reserve. We will not be purchasing new Bitcoin, but we will use confiscated assets to continue to enrich it.”
This statement extinguished market expectations that the U.S. government might become a super buyer of Bitcoin. President Trump signed an executive order on March 6 of this year, authorizing the Treasury to establish a national Bitcoin reserve and allowing it to make additional purchases without increasing the tax burden on taxpayers.
However, Bessent’s latest remarks confirmed that, at least in the short term, the government would not actively purchase Bitcoin from the market. Nonetheless, Bessent also brought a glimmer of hope by confirming that the government would cease selling its existing Bitcoin holdings.
“We will stop selling. I believe that at today’s prices, our Bitcoin reserves are valued between $15 billion and $20 billion.” This move echoes the earlier concept proposed by White House advisor David Sacks of a “Digital Fort Knox,” which suggests that the Bitcoin held by the government should serve as a long-term store of value rather than a short-term liquid asset.
In short, this significant drop was a “sell-off due to unmet expectations.”
The market had previously rallied on the dream that “the U.S. government would become a major buyer of Bitcoin,” pushing prices to new highs. Treasury Secretary Bessent shattered this dream, bringing the market back to reality. Although he also mentioned that they would “stop selling” existing Bitcoin (which is itself a mildly positive piece of news that reduces market selling pressure), this positive news could not offset the immense disappointment from the “not purchasing” announcement, leading to a sharp price decline.
Economic Warning Signs: Producer Price Index (PPI) Unexpectedly Soars
While the policy news shook market confidence, an unexpected piece of U.S. economic data became the last straw.
The latest Producer Price Index (PPI) annual growth rate in the U.S. reached 3.3%, far exceeding market expectations of 2.5% and the previous value of 2.3%, marking the largest month-on-month increase since June 2022.
This data stands in stark contrast to the consumer price index (CPI) released earlier this week, suggesting that inflationary pressures remain stubborn and may force the Federal Reserve to delay interest rate cuts.
What is the Producer Price Index (PPI)?
The Producer Price Index is an economic indicator that measures the average changes in prices received by domestic producers (manufacturers, farmers, miners, etc.) for their products and services.
Simply put, it can be understood as the “factory gate price” or “wholesale price” change index. It focuses on price changes of goods from the production side to entering retail channels.
As price changes typically propagate from the upstream (production side) to the downstream (consumption side) in the industry chain, the trend of the PPI often leads that of the Consumer Price Index (CPI).
When the PPI rises, it indicates that production costs have increased. To maintain profitability, producers are likely to pass these increased costs onto wholesalers and retailers, ultimately leading to a rise in consumer prices (CPI). Therefore, a higher-than-expected PPI data is usually seen as a warning sign of increasing inflationary pressures in the future.
In response, based on the CME FedWatch tool, market expectations for a 25 basis point rate cut by the Fed on September 17 dropped significantly from 99.8% the previous day to 90.5%.
The cooling of rate cut expectations is typically unfavorable for risk assets like Bitcoin.
This is because when rate cuts seem unlikely, it implies that U.S. Treasury bonds and bank time deposits—”risk-free assets”—will continue to offer attractive high interest rates. Investors may feel that rather than risking substantial investments in Bitcoin, it is better to earn interest steadily, thus withdrawing funds from Bitcoin.
Moreover, a high-interest-rate environment also indicates that the cost of borrowing is high, leading to a decrease in the “hot money” (liquidity) available for investment and speculation in the market. Consequently, the funds available for investing in risk assets like Bitcoin will shrink, putting pressure on prices.
The Bitcoin market is currently at a critical crossroads, where it must not only absorb the selling pressure from profit-taking after setting a record but also simultaneously cope with dual challenges from policy uncertainties and macroeconomic headwinds. In the short term, whether prices can regain their peak will require time to observe.
References: cointelegraph, cointelegraph