Restrictive Central Banks Weigh on Crypto Market Confidence

The cryptocurrency market is struggling to regain confidence in the face of increasingly restrictive central banks. The latest inflation data from the US, which came in line with expectations but failed to show a reduction in underlying inflationary pressures, has strengthened expectations for a more aggressive Federal Reserve. Market probabilities now assign over an 86% chance that interest rates will rise to 4.00% at the September 16 meeting.

This environment is challenging for cryptocurrencies because higher interest rates maintained for a prolonged period generally increase the attractiveness of stable markets while reducing liquidity available for higher-risk assets. As a result, expectations of more restrictive central banks may limit the crypto market's ability to establish a consistent recovery over the medium term.

The increasing correlation between Bitcoin and traditional risk assets is also a concern. Over the last 25 trading sessions, the correlation coefficient has moved back above the 0 level, reflecting a positive relationship between both markets and increasing similarity in their recent price movements. This may lead to a slowdown in momentum observed across traditional markets affecting Bitcoin as well.