Bitcoin Plunges Below $113K as Inflation Fears and Fed Anxiety Rattle Markets

Digital gold gets tarnished—Bitcoin's meteoric rally hits a wall as macroeconomic headwinds blow harder than expected.

Inflation's Ghost Haunts Crypto

Traders are hitting the sell button hard as inflation data refuses to play nice. The Fed's looming decisions have everyone second-guessing their positions—nobody wants to be the last one holding the bag when Jerome Powell starts speaking.

The $113K Line in the Sand

That key psychological level just crumbled like a stale cookie. Support levels are getting tested harder than a startup's burn rate during a crypto winter.

Traders are watching every tick like hawks—because in this market, you blink and you're down six figures. The volatility's enough to give even the most hardened diamond hands a case of the shakes.

Meanwhile, traditional finance guys are probably smugly adjusting their tie knots and muttering something about 'I told you so'—as if their 2% bonds are anything to write home about either.

Bitcoin Retreats from Record Highs

Bitcoin, the world’s largest cryptocurrency, has been on a sharp pullback since reaching an all-time high of $124,128 last Thursday. On Tuesday, it fell as low as $113,000, marking its lowest level since August 2. At the time of writing, BTC was trading at $113,200, down 2.5% in the past 24 hours.

Ethereum, the second-largest cryptocurrency by market capitalization, also dropped, trading at $4,100 — a 4.6% decline from Monday. Other major altcoins followed suit, with XRP sliding 6.7% and Solana losing 3.5%.

Joe DiPasquale, CEO of BitBull Capital, attributed the drop to a mix of macroeconomic worries and investor repositioning after the recent rally.

“Rising Treasury yields and stronger-than-expected U.S. economic data have taken a bit of air out of risk assets broadly, and crypto is no exception,” DiPasquale explained.

Macroeconomic Pressures Mount

The downturn in Bitcoin and altcoins coincided with declines in traditional markets. Both the S&P 500 and the Nasdaq Composite slid on Tuesday, dropping 0.6% and 1.4%, respectively, as investors braced for a string of important economic updates this week.

A major focus is on the Federal Reserve, which has kept interest rates between 5.25% and 5.50% since last December. Minutes from the Fed’s most recent policy meeting, set for release on Wednesday, are expected to reveal sharp internal divisions. Two directors dissented in the last meeting, marking the first such split in policy decisions since 1993.

On Thursday, investors will scrutinize new unemployment claims and manufacturing data for signs of cooling inflation. Friday brings a speech from Fed Chair Jerome Powell at the Jackson Hole Economic Symposium, which could hint at the central bank’s willingness to adjust rates.

Despite WHITE House pressure to ease borrowing costs, most Fed officials remain cautious. Inflation continues to run above the central bank’s 2% target, with July’s Consumer Price Index (CPI) rising 2.7% year-over-year. Core CPI, which excludes food and energy, was even higher at 3.1%.

Trade Tensions and Geopolitical Risks

The backdrop of U.S. trade frictions and geopolitical instability has amplified market jitters. The TRUMP Administration’s ongoing trade war and new tariff measures are fueling higher prices in certain goods categories, adding to inflationary pressures. Investors, already nervous about slowing global growth, have responded by reducing exposure to speculative assets like cryptocurrencies.

Juan Leon, Senior Investment Strategist at Bitwise Investments, said the correction was also exacerbated by cascading liquidations.

“Profit-taking from last week’s all-time high has led to cascading liquidations from Leveraged trades,” Leon wrote.

According to data from CoinGlass, investors have closed more than $559 million in positions over the past 24 hours, including $487 million in long positions.

Altcoins Follow Bitcoin’s Slide

Ethereum, XRP, Solana, and other major cryptocurrencies mirrored Bitcoin’s decline. Ethereum’s retreat comes just days after it nearly touched its own all-time high. Meanwhile, XRP’s 6.7% slide and Solana’s 3.5% drop reflect investors’ broader MOVE away from high-risk bets in the digital asset space.

Despite these declines, some analysts see potential upside in the longer term. On-chain data shows stablecoin reserves remain high, with over $160 billion in supply and $32 billion sitting on exchanges, according to CryptoQuant. This “dry powder” could support a future rally if market sentiment shifts.

Looking Ahead

For now, markets remain on edge. Rising bond yields, inflation data, and policy uncertainty are keeping investors cautious. While Bitcoin’s pullback has cooled the euphoric momentum of early August, the cryptocurrency’s resilience above the $110,000 threshold may signal that long-term holders are still confident.

The coming days will be critical as traders digest fresh economic reports and Powell’s Jackson Hole remarks. A dovish signal from the Fed could ease fears and reignite momentum, but a hawkish stance may prolong Bitcoin’s correction.

Until then, the world’s largest cryptocurrency is likely to remain highly sensitive to macroeconomic developments, underscoring its increasingly tight correlation with traditional risk assets.