Key Points:
With data showing a significant cooling of PPI inflation in August, BTC has surpassed $114,000.
Traders believe this data may prompt the Federal Reserve to cut interest rates in September.
Long-term on-chain trends indicate that after a Fed rate cut, there will be short-term volatility followed by more extended upward potential.
BTC has broken through $114,000 for the first time since August 24, continuing its recent recovery as U.S. inflation data came in well below expectations. This increase closely followed the release of the August Producer Price Index (PPI), which fell to 2.6% year-on-year, significantly below the expected 3.3%. The core PPI, excluding food and energy, dropped to 2.8%, well below the market consensus expectation of 3.5%.
Kobeissi Communications reported that on a monthly basis, the PPI even turned negative, marking only the second contraction since March 2024. Additionally, July's inflation data was revised down, with the overall PPI adjusted from 3.4% to 3.1% and the core PPI adjusted from 3.7% to 3.4%. Coupled with a historic revision of U.S. employment data earlier this week (a reduction of 911,000 jobs over the past 12 months), the market widely believes that rate cuts are imminent.
Market analyst Skew noted that producer inflation trends typically lag behind the Consumer Price Index (CPI) by one to three months. This suggests that CPI data may remain stubbornly high in the short term, although the overall trend clearly points to continued cooling of inflation in the fourth quarter. While the slowdown in PPI has encouraged the market, the flow of hedge funds may continue until the CPI confirms a cooling trend.
With a Fed rate cut almost certain to occur, BTC's historical performance shows a consistent pattern: first experiencing volatility, then followed by an increase. Two key on-chain indicators, the Market Value to Realized Value ratio (MVRV) and the whale ratio, provide deeper insights.
MVRV compares BTC's market value to its realized value (the total value when BTC last moved). When MVRV approaches 1, BTC is typically considered undervalued, while levels close to 3-4 indicate that market valuations may be overheated.
At the same time, the whale ratio measures the proportion of large holders' trades in the exchange fund flow, clearly showing when whales are selling BTC or withdrawing it for storage.
Data from CryptoQuant shows that in March 2020, the rate cut caused MVRV to crash to near 1, with market panic erasing speculative gains for investors, while the whale ratio surged significantly due to massive whale sell-offs.
As liquidity surged, MVRV began to rebound, and whales shifted to accumulation strategies, collectively driving BTC's bull market from 2020 to 2021. A similar pattern is expected to emerge in the monetary easing cycle at the end of 2024, with both indicators first reflecting short-term selling pressure, then stabilizing and triggering a new wave of upward momentum.
If historical patterns repeat, the Federal Reserve's monetary easing policy in 2025 may initially bring market volatility, but overall, it will provide ample liquidity support for BTC to reach new highs.
Related: Bitcoin (BTC) hits $113,000, analysts say Fed rate cuts may drive it "back to highs."
This article does not contain any investment advice or recommendations. Any investment and trading activities involve risks, and readers should conduct their own research before making decisions.
Original: “Fed Rate Cuts Likely Due to Weak U.S. PPI Data, Bitcoin (BTC) Surpasses $114,000”
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