After last week’s significant sell-off, where bitcoin experienced a drawdown of over 20% at one point, bulls managed to recover most of the losses. However, buyers failed to sustain the momentum, ultimately getting rejected and closing just below the critical $60,000 psychological level to end the week.

The weekly open on the CME futures exchange started off bearishly, with a 3.6% gap-down at $59,000 during the Sunday night session, following a strong close above $61,000 the previous Friday. Although the price rallied mid-week on Wednesday to as high as $62,200, the release of the U.S. CPI report triggered a negative response, leading to a sell-off and an intra-week low of $56,300 by Thursday.

Macroeconomic Headwinds Impacting Bitcoin

The long-awaited monthly CPI print on Wednesday came in below expectations, which would generally be bullish for risk-on assets like bitcoin.

However, a closer look revealed significant increases in key categories within the CPI report, such as transportation, homeowner, and rent inflation, which saw jumps between five to nine percentage points. This led to diminished expectations for deeper rate cuts in September and November, as reflected in the CME “FedWatch” indicator.

For example, the likelihood of a 0.75 basis point rate cut in November dropped significantly, with the market now pricing in a 62.6% chance of just a 0.50 basis point cut by election week. The reduced probability of more aggressive rate cuts likely contributed to the post-CPI sell-off.

Bitcoin Struggles Against Key Moving Averages

Last Thursday, bitcoin attempted to break above the 200-day simple moving average (SMA), currently around $62,400, but was rejected each time it approached this critical level. The 200-day SMA is a vital indicator, often seen as a long-term trend line that helps determine the overall market direction.

When bitcoin is above the 200-day SMA, it typically signals a bullish trend, while falling below it can suggest a shift toward bearish conditions. In addition to the 200-day SMA, the 50-day exponential moving average (EMA) is also converging at nearly the same level, making the $62,400-$62,500 zone crucial for determining the macro direction.

Until bitcoin can close a daily candle above this level, market sentiment is likely to remain bearish.

Bitcoin’s Negative Correlation To Other Asset Classes

The chart above compares bitcoin’s price to the Nasdaq, showing a steady downtrend in bitcoin relative to the tech sector since its peak price of $74,000 in March.

Bitcoin is down about 8% this month, while the Nasdaq has seen slight gains, indicating a shift in capital from bitcoin and crypto into other asset classes.

A correlation matrix above also reveals bitcoin’s relative underperformance, showing a negative correlation to the Nasdaq 100 and gold, and only a weak positive correlation to the S&P 500.

US Government Transfers Significant Silk Road Bitcoin Holdings Again

Another headwind for bitcoin this week was the U.S. government’s transfer of 10,000 bitcoin worth $600 million to Coinbase Prime. This likely contributed to the additional 2% price drop on Thursday. This transfer follows earlier significant moves by the government involving Silk Road bitcoin in April, which also had a bearish impact on the price.

With macroeconomic and political uncertainty, coupled with weak technical indicators on higher timeframes, the direction of bitcoin remains challenging to predict. One positive note is that bitcoin’s dominance remains high, underscoring its status as the top asset in terms of market capitalization among all other projects.

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