Bitcoin Loses Key Support After Dismal US GDP Data

The leading cryptocurrency is retreating sharply as the US economy shows worrying signs of slowdown and inflation, testing BTC's resilience.

The price of Bitcoin (BTC) suffered another blow, registering a drop that caused it to lose crucial support at $107,000. At the time of this report, the world's leading cryptocurrency was trading at $105,747, down -1.88%. This abrupt decline began immediately after the release of worrying US Gross Domestic Product (GDP) data, which has raised alarms about the global economic future and the direction of the crypto market.

The loss of the $107,000 support is a significant technical event for Bitcoin. / Tradingview

Economic Snapshot: Is Stagflation on the Horizon?

The data from the second quarterly estimate of US GDP paint a complex and challenging picture:

Quarterly GDP Growth Rate (QoQ 2nd Est): The economy contracted by -0.2%. This figure, although slightly better than the forecast of -0.3%, marks the lowest growth since September 2022 and represents an abrupt halt from the 2.4% growth in the previous quarter, indicating a significant slowdown in economic activity.

Quarterly GDP Price Index (QoQ 2nd Est): The index remained at a high 3.7%, in line with the forecast but notably higher than the previous 2.3%. This increase suggests that, despite the economic contraction, underlying inflationary pressures persist. The combination of low growth and high inflation raises the risk of "stagflation" if the contraction continues.

Quarterly GDP Sales (QoQ 2nd Est): Sales fell a worrying -2.9%, exceeding the forecast of -2.5% and marking the lowest level since June 2020. This is a clear indicator of weak domestic and external demand, reflecting lower consumption and investment activity.

This scenario of "economic slowdown with persistent inflation" is particularly challenging for investors, as it generates risk aversion in traditional markets.

Bitcoin: Safe Haven or Risk Asset in Times of Crisis?

In its relatively short but dynamic history, Bitcoin has displayed a dual behavior: sometimes acting as a risk asset, correlated with technology stocks, and at other times, as "digital gold" or an uncorrelated asset in the face of macroeconomic uncertainty and concerns about fiat currency inflation.

In the Face of a Slowdown: The contraction in GDP (-0.2%) and the drop in sales (-2.9%) tend to drive risk aversion. In this scenario, Bitcoin tends to behave like a risky asset, experiencing downward pressure as investors liquidate more volatile assets in search of safety.

In the Face of Persistent Inflation: This is where Bitcoin could find a counterbalance. If inflation remains high (3.7%) despite low growth, investors could seek alternative hedges to fiat currencies. Bitcoin, with its limited supply and "digital gold 2.0" narrative, could benefit from this search for protection against currency depreciation.

Expectations regarding monetary policy are also key. If central banks are forced to consider rate cuts to stimulate the economy, even with inflation, a possible "pivot" to looser policy (low rates, liquidity injections) could be bullish for Bitcoin in the medium term, as capital seeks returns outside of traditional assets.

Technical Analysis: Simple Pullback or Trend Reversal?

The loss of the $107,000 support is a significant technical event for Bitcoin. However, this downward movement occurred with low trading volume, suggesting that selling pressure is not as significant as it might appear, and that the drop could be more of a technical pullback than a drastic trend reversal.

Currently, the cryptocurrency was breaking out of an overbought zone. Despite the recent decline, Bitcoin continues to trade in a market with strong bullish sentiment, as its price remains above the 50- and 200-period exponential moving averages (EMA50 and EMA200) on the daily chart. The next key support level to watch should the decline continue would be $100,000.

Outlook: Short-term volatility, medium-term potential

In the short term, Bitcoin is likely to experience increased volatility, driven by widespread risk aversion in macroeconomic markets. It could fall further to test the $100,000 support. However, in the medium term, if the stagflation narrative consolidates or if central banks opt for looser monetary policy to avoid a deep recession, Bitcoin could to find strong bullish momentum. Its role as a hedge against inflation and fiat currency devaluation, coupled with its scarcity, could strengthen its position.

Bitcoin's recent decline, tied to the grim US GDP data, highlights the complex interplay between the macroeconomy and the volatile cryptocurrency market. While the initial pressure is evident, the persistence of inflation could, paradoxically, strengthen Bitcoin's narrative as a store of value in the medium term. Investors will need to remain vigilant, closely monitoring both economic indicators and technical levels of the BTC price to navigate this uncertain but potentially lucrative terrain.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in cryptocurrencies carries significant risks. Always conduct your own research and consult a qualified financial professional before making any investment decisions.