Update as of 02/25 below. This article was first published on February 24.
Bitcoin and cryptocurrency values are in turmoil following a significant hack of the Dubai-based Bybit exchange, raising concerns over possible “suppression” of bitcoin prices.
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The price of bitcoin experienced a temporary drop on Friday after the hack’s disclosure, though it has since rebounded as U.S. Senator Cynthia Lummis, a bitcoin supporter, prepares the market for significant legislative updates.
Meanwhile, as Elon Musk seems to be considering a major transformation of the Federal Reserve, economists are signaling that a “nightmare” scenario could significantly impact bitcoin prices.
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Federal Reserve chair Jerome Powell is facing the threat of stagflation, which could wreak … [+]
Recently, a Bank of America survey of global fund managers indicated that expectations for stagflation—characterized by below-trend growth coupled with above-trend inflation—have reached a seven-month high among respondents.
“Stagflation has certainly returned as a concern given the policies that could diminish consumer demand while prolonged inflation restricts the Federal Reserve’s response,” stated Jack McIntyre, portfolio manager for Brandywine Global’s fixed income strategies, in an interview with Reuters. “More troubling for us than inflation risks is the potential for stagflation,” added Tim Urbanowicz, chief investment strategist at Innovator Capital Management.
As of 02/25, the bitcoin price has plummeted to under $90,000, reaching its lowest point since soaring after Donald Trump’s November election victory.
The Crypto Fear & Greed Index, which gauges market sentiment, has entered “extreme fear” territory.
Bitcoin’s 10% decline in just 24 hours has heightened concerns of a broader crash in the crypto market, as major cryptocurrencies such as Ethereum, Solana, and Ripple’s XRP have all lost between 10% and 15% of their value.
Market analysts are racing to assess the reasons behind the drop in bitcoin prices and to forecast how low they might fall along with the crypto market.
“Although bitcoin is performing relatively well compared to other digital assets, it’s now caught in the broader sell-off driven by meme coins like Solana and the risk-averse sentiment in markets,” noted Geoff Kendrick, head of crypto research at Standard Chartered Bank, in an email. He pointed to the declining Nasdaq index, which has fallen from near its all-time high last week.
Kendrick has observed that “lower U.S. Treasury yields, which are a result of risk-off markets following Friday’s purchasing managers’ index data, could be a significant long-term positive for bitcoin.” However, he cautioned traders against purchasing during this dip just yet, predicting prices could soon fall to around $80,000 as investors withdraw funds from the wave of bitcoin spot exchange-traded funds that surged last year.
“Before it’s advisable to buy the dip, I anticipate a day with $1 billion in ETF outflows,” Kendrick remarked, indicating that this figure would surpass the previous record of $583 million in outflows from bitcoin ETFs.
The Federal Reserve had initiated an interest rate cutting cycle in September but has since slowed down as inflation fears resurface, impacting the bullish trend in bitcoin prices.
“The markets are currently anticipating a 97.5% probability of no interest rate change at the Fed’s upcoming meeting in March, a notable increase from a 75.5% probability just a month ago,” stated Dan Coatsworth, investment analyst at AJ Bell, in an email. “It’s looking increasingly likely that we may not see further rate cuts until much later in 2025, if at all.”
In the week ahead, the Fed’s preferred inflation gauge—the personal consumption expenditures (PCE) price index—is set to indicate that inflation remains above the Fed’s 2% objective.
Jon Brager, a portfolio manager at Palmer Square Capital Management, warned in an interview with Quartz that the Fed might even opt to raise interest rates this year.
Chairman Powell risks inciting U.S. President Donald Trump, who recently tweeted that “interest rates should be lowered” following the Fed’s decision to maintain current rates earlier this month.
“Currently, investors are adopting a ‘wait-and-see’ approach as they gauge optimism regarding institutional inflows, especially from bitcoin exchange-traded funds (ETFs), against the backdrop of macroeconomic uncertainties, potential global trade conflicts, and Federal Reserve interest rate strategies,” commented James Toledano, COO of Unity Wallet, in an email.
“A significant price crash seems unlikely in the near term unless a major macroeconomic, geopolitical upheaval, or regulatory change occurs, and in this context, most are hopeful for favorable regulatory developments, particularly in the U.S.”
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The bitcoin price rally has stagnated over the last several months.
Despite this, the bitcoin price has remained under $100,000 throughout February, which some analysts warn could lead to significant movement this week.
“Bitcoin continues to exhibit sideways movement, while the overall dynamics in the crypto market resemble a ball that bounces lower gradually,” stated Alex Kuptsikevich, chief market analyst at FxPro, in an email.
“The local resistance has shifted to around the $3.20 trillion mark, while the lower boundary has stabilized near $3.10 trillion for the past three weeks. Thus, the market is poised for a compressed spring effect, which may trigger a sharp price movement in either direction soon.”
