Crypto Markets Struggle as Inflation and Fed Policy Weigh on Bitcoin

For the first time since the US presidential election, Bitcoin and Ethereum ETFs experienced a noticeable outflow of capital last week. The background to this is inflation data and the reaction of the US Federal Reserve.

Things are not going well for Bitcoin and Co. at the moment, almost all major cryptocurrencies have to cope with a weekly loss

This is also reflected in the Bitcoin ETFs, from which a total of around $430 million of capital was withdrawn last week. Ethereum ETFs also weakened and lost a total of around $7 million, according to the weekly report from CoinShares. This is the first time since the US presidential election in early November that the crypto market has had to endure a week that ended in a significant loss. Analyst James Butterfill sees inflation data and the interest rate policy of the US Federal Reserve as the causes.

The risk of persistent inflation is growing in the US. Inflation was measured at 3 percent in January, slightly more than expected and significantly above the Fed’s target of 2 percent. Bitcoin is “highly sensitive” to the likely consequences of the situation, writes Butterfill. The same seems to apply to Ethereum. So-called core inflation in the US reached 3.3 percent in January, which excludes volatile food and energy prices from the data.

This leaves the Fed facing a dilemma. In order to combat inflation, it will hardly be able to continue the course of cutting the key interest rate that it began in autumn 2024. This had helped the price development of Bitcoin because lower interest rates usually increase investors’ willingness to invest in riskier asset classes such as BTC and Ethereum ETFs.

Currently, 97.5 percent of Wall Street professionals consider a further reduction in the US key interest rate to be out of the question, according to the industry service CME Fed Watch . Fed President Jerome Powell said “there is no rush” to cut interest rates. At currently 4.25 to 4.5 percent, the US key interest rate remains at a level last seen at the beginning of the century.

Conclusion: Interplay between Bitcoin and US monetary policy

US President Donald Trump is fuelling the risk of inflation with his provocative use of punitive tariffs , but still wants the Fed to cut interest rates. The Fed will hardly accept that its independence is being called into question. In this field of tension, Bitcoin is having a hard time building on the successes of 2024.

A good $400 million in capital outflows from Bitcoin ETFs and those for Ethereum may sound considerable. But it must be compared to the almost $30 billion that the Ethereum and Bitcoin ETFs have collected since the US election, emphasizes Butterfill. It seems as if we have to prepare for a certain stagnation in the crypto markets for the time being.

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(Featured image by Kanchanara via Unsplash)

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