What happened?
The cryptocurrency market showed strong risk aversion as the report on the personal consumption expenditure (PCE) index, the inflation indicator preferred by the Fed, approached. The CoinDesk 20 Index fell by 3.6% in 24 hours.
Upon the release of the report, it was confirmed that year-on-year PCE inflation remained at 2.6%, while core inflation (core PCE) rose slightly to 2.9%, a five-month high. This weakened expectations for aggressive rate cuts by the Fed.
Consequently, Bitcoin fell nearly 2.5–3%, settling around USD 110,000, erasing some recent gains. Ethereum, XRP, Solana, and other altcoins also experienced significant declines.
Why is the PCE so important?
The PCE is the inflation indicator preferred by the Federal Reserve (Fed). A high reading tends to delay expectations for rate cuts, negatively affecting risk assets like cryptocurrencies.
A figure like 2.9% of the core PCE, although within the expected range, suggests that inflationary pressures remain in place, thus limiting the room for a more flexible monetary policy.
Impact on the crypto market
High volatility: Uncertainty about the monetary direction (more than about the current outcome) generated a reversal in risk sentiment.
Preference for alternative assets: A reduction in interest in Bitcoin futures was detected, with weaker position openings, while Ether still shows moderate positive flows in spot ETFs.
Conclusion and next approach
The PCE report confirmed that inflation does not easily fade; this reduces expectations for an immediate rate cut by the Fed.
The result was a clear downward pressure on cryptocurrencies, due to the adjustment in monetary expectations and the return of caution from investors.
If the next employment report or Powell's speech indicates that the Fed continues with its more flexible approach, this could relieve the pressure and allow for a rebound. Until then, the environment remains cautious.
