Bitcoin is experiencing increased price volatility, reaching a six-month peak due to concerns around trade tensions, inflation risks, and overall economic uncertainty in the U.S. The 30-day volatility of the cryptocurrency rose to 3.6% on Wednesday, up from 1.6% a month earlier. This surge, although lower than last year's peak of 4.3%, indicates that Bitcoin's price fluctuations are likely to persist. Analysts, such as Greg Magadini from Amberdata, attribute this volatility to broader economic worries, including trade policies and inflation fears under the current administration. Magadini predicts that this high-volatility scenario will continue until there is more clarity on the impact of tariffs on inflation and interest rates.
Bitcoin's price has dropped by 10% in the past month and over 20% from its all-time high of over $108,000 in January, according to CoinMarketCap. Despite expectations for Bitcoin's volatility to diminish as it matures as an asset, its strong correlation with the stock market is contributing to current price instability. The CBOE Volatility Index (VIX), which gauges market fear, recently spiked to nearly 30, its highest level since August. Likewise, the S&P 500 has erased all its gains since the 2024 elections.
The U.S. Federal Reserve's decision on Wednesday to maintain steady interest rates reflects Chair Jerome Powell's recognition of "unusually high" macroeconomic uncertainty. Powell acknowledged that efforts to manage inflation might be delayed due to tariffs, potentially leading to prolonged higher rates. This uncertainty in policy has fostered a more risk-averse investment climate, prompting many to reduce portfolio exposure.
Despite the recent decline in the price of Bitcoin, Zach Pandl from Grayscale emphasized that the long-term outlook as an alternative to the U.S. dollar remains unchanged. Pandl indicated that the current dip in Bitcoin's price could offer a favorable entry point for new investors. Last year, Bitcoin saw a price surge when the Federal Reserve cut interest rates, historically benefiting risk assets like Bitcoin by boosting liquidity. Despite the present volatility, Grayscale views this as a temporary setback amidst a promising future for Bitcoin as a hedge against inflation.