Bitcoin drops on signs of “higher for longer”

Bitcoin has declined by about 1% over the last two days, to trade around $28,500. This comes after two weeks of muted price action. The market is starting to appreciate that rates may remain "higher for longer" and this is weighing on the cryptocurrency. Bitcoin's volatility is still low, but the recent price movement is showing signs of life, albeit to the downside. The question is if the downside movement will break support and open bitcoin up to lower prices ahead?

Recent economic data and the latest FOMC minutes are acting as a headwind. This week's U.S. economic data releases, including retail sales and industrial production, have once again highlighted the idea of a robust economy. Forecasts for economic growth in the third quarter have been raised as well. Furthermore, the minutes released from the Federal Reserve's policy meeting in July, which came out on Wednesday, confirm that the Fed is determined to bring down inflation by potentially increasing interest rates.

The strong state of the economy provides little motivation for the Fed to decrease interest rates, which are already at high levels compared to previous years. Investors are now expecting more interest rate hikes beyond the current levels. The gradual increase in rates since March 2022 has significantly impacted assets that are sensitive to market risks, such as stocks and Bitcoin.