Traders Focus On PCE Inflation Data As Bitcoin Slips Below $24,000

The price of BitcoinBTCUSD -2.12% and other cryptocurrencies fell on Friday. Digital assets are expected to respond to important economic news in the coming day as sentiment toward cryptocurrencies and stocks is still highly dependent on predictions of inflation and interest rate increases.

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Over the previous 24 hours, Bitcoin's price has dropped 2% to under $23,850. The greatest digital asset has fallen in recent days from heights above $25,000, levels that reflect the highest point since last summer, despite the fact that Bitcoin is still up around 40% so far this year, a rally that has prompted demands for a new bull market. The Federal Reserve's chosen inflation gauge, the personal consumption expenditures (PCE) price index, is scheduled to be released in January.

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According to Edward Moya, an analyst at broker Oanda, "As Wall Street gyrates over Fed rate rise anticipation revisions, Bitcoin wavesr around the $24,000 level."

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While the stock market was substantially outperformed by the rise of Bitcoin to start the year, digital assets have fully caught up with stocks and are now trading in line with the Dow Jones Industrial Average and S&P 500. A challenging macroeconomic background of high inflation and rising interest rates—forces that continue to influence sentiment for both asset classes—led to a strengthening of the link between cryptocurrencies and stocks during the last year.

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Investors are still apprehensive about how much the Fed will increase interest rates this year in an effort to combat inflation that has been at a decades-high level. A big concern for investors has been the Fed's rapid tightening of financial conditions over the past year, which has decreased demand for risk-sensitive assets like equities and cryptocurrencies.

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While the rebound at the beginning of 2023 was mostly driven by hope that the worst was behind us, conflicting economic indicators have given rise to worries that inflation is more entrenched than previously believed, necessitating the Fed's need to maintain higher rates for longer. The likelihood that the Fed will announce a significant, 50 basis-point rate hike next month is rising as markets increasingly factor higher rates throughout this year.

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Due to its potential to alter expectations regarding the direction of rates and have an impact on the Fed's next move, PCE data anticipated on Friday are of particular importance. The data, which is scheduled for release at 8:30 a.m., is likely to cause Bitcoin to move in lockstep with the larger stock market. East Coast time. Even if the numbers come in as predicted, investors may still be alarmed due to concerns that it will take a long road of higher rates to reach the Fed's 2% inflation objective. According to economists, the PCE gauge of inflation only slightly slowed in January.

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The second-largest cryptocurrency behind Bitcoin, EtherETHUSD -2.48%, had a 1% decline to below $1,650. CardanoADAUSD -2.78% and Polygon both fell by 3% and 4%, respectively, as smaller cryptos or altcoins were also lower. Both DogecoinDOGEUSD -3.21% and Shiba InuSHIBUSD -3.36%, two memecoins, showed a similar pattern, losing 2%.