Bitcoin took a nosedive on Tuesday, slipping below the $113,000 mark after the latest ISM Services PMI data signaled a possible economic slowdown in the United States. The reading for July came in at a mere 50.1, falling short of the anticipated 51.5 and adding to a three-month streak of lackluster economic indicators. This has left many in the crypto world asking: Is it time for the Fed to step in and cut rates?
A Shaky Economic Terrain
The ISM Services PMI, a closely watched gauge of economic health, revealed its third consecutive month of tepid growth, with readings dropping from 49.9 in May to 50.8 in June. The July figure, just above the threshold that separates expansion from contraction, is causing ripples across financial markets. Bitcoin, which had been riding high above $114,000, plummeted to $112,800—a nearly 2% dip within 24 hours—while the Nasdaq also faltered, reversing earlier gains to close with a 0.5% loss.
Economist Mark Zandi notes, “The data always suffers big revisions when the economy is at an inflection point, like a recession.” According to Zandi, the economy appears to be teetering on the brink, with consumer spending stagnating and both construction and manufacturing sectors contracting. This precarious situation is compounded by inflationary pressures, which make it challenging for the Federal Reserve to provide relief. As explored in Bitcoin Tumbles Below $116K as Jerome Powell Delivers Hawkish Remarks, recent comments from the Fed chair have also contributed to market volatility.
Inflation, Tariffs, and the Fed’s Dilemma
Amidst these economic tremors, the Prices Paid subindex of the ISM report soared to a cycle high of 69.9, signaling stagflationary pressures. One respondent lamented, “Tariffs are causing additional costs as we continue to purchase equipment and supplies… the cost is significant enough that we are postponing other projects to accommodate these cost changes.”
This paints a troubling picture for the Federal Reserve, which is caught between rising inflation and a potential economic contraction. Lacy Hunt and Van Hoisington of Hoisington Investment Management argue that the Fed should act swiftly. “The Fed needs to be quickly moving to an accommodative policy,” they assert. They consider the inflation gains from tariffs to be temporary and emphasize the more severe impact of subsequent contractionary effects.
The Road Ahead for Bitcoin and the Fed
For the cryptocurrency market, these economic indicators are more than just numbers—they’re harbingers of potential volatility. Bitcoin’s recent slip might just be the beginning if the broader economic picture continues to darken. The Fed’s next moves will be closely scrutinized, as any shift towards a more accommodative monetary policy could have profound implications for both traditional and crypto markets. This follows a pattern observed in FOMC Report Causes Bitcoin Dip: Will Sell-Side Pressure Drag Prices Lower?, where policy announcements have led to significant market reactions.
However, the path forward is fraught with uncertainty. While some market watchers are calling for rate cuts, others caution that such a move might not be imminent. The Fed is facing a complex puzzle, needing to balance inflation concerns with the risk of economic downturns.
As we move deeper into 2025, the questions loom large: Can the Fed navigate this turbulent landscape without triggering further market upheaval? And will Bitcoin, often seen as a hedge against economic instability, weather the storm or succumb to broader market forces?
The answers remain elusive, but one thing is clear—both crypto enthusiasts and traditional market participants will be keeping a keen eye on the Fed’s next steps. The coming months promise to be a critical period, with high stakes for all involved.
Source
This article is based on: Does the Fed Need to Cut Now? Bitcoin Crumbles Back Below $113K After ISM Services PMI
Further Reading
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Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
