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Bitcoin & XRP Fall: How Inflation Data Could Stop Crypto Rally?

Bitcoin and XRP Stumble as Fresh Inflation Data Sparks Caution That Might Stunt Crypto Rally Survival

Written By : Pardeep Sharma
Reviewed By : Atchutanna Subodh

Overview

  • Bitcoin fell toward $121,000 and XRP retreated as traders awaited key US inflation data.

  • Sticky 3.1% core inflation could delay Federal Reserve rate cuts.

  • ETF outflows and profit-taking show crypto’s vulnerability to macroeconomic shifts

Bitcoin has retreated from its recent highs, falling toward $121,000. At the same time, XRP has eased back after its initial surge following a legal settlement. The reason behind this retreat lies in careful watching of US inflation data. 

Traders and investors are waiting to see if inflation remains sticky, which could make central banks pause or delay interest rate cuts. Both Bitcoin and XRP, as risk-sensitive assets, respond sharply to shifts in those expectations.

Inflation Signals Still Worry the Market

The latest report from the US Bureau of Labor Statistics shows that consumer prices rose 0.2 percent in July. On a year-over-year basis, overall inflation now stands at 2.7 percent. Core inflation, which excludes volatile food and energy prices, remains higher: it rose 0.3 percent for the month and stands at 3.1 percent over the past year. 

This level of core inflation remains a concern as it suggests that pressures are not fading as quickly as hoped. Housing costs are still rising steadily, and other service-related expenses outside housing are holding firm. This makes central bankers cautious and means expectations for swift rate cuts may be dampened.

Also Read - What Would Happen If Bitcoin Hits $1 Million?

Bitcoin’s Pullback Reflects Fear of Tighter Policy

The Bitcoin price drop toward $121,000 reflects how sensitive it is to policy expectations. Traders added extra protection in options markets, with heavy positioning around the $120,000 level. If inflation stays high, the Federal Reserve may slow down or reduce the scale of interest rate cuts, strengthening real yields and supporting the dollar. 

That often weakens demand for assets like Bitcoin, which don’t yield income. US spot-Bitcoin ETFs showed outflows early in August, with nearly $812 million withdrawn on August 1 and further redemptions following. These outflows don’t end a rally, but they do make corrections steeper when macroeconomic sentiment turns cautious. Still, optimism returned later in the week, and Bitcoin even hit fresh intraday highs, showing how fast sentiment can shift if easing hopes re-emerge.

XRP Cools Off After Legal Clarity

The recent XRP price surge came after a long-standing lawsuit with the US Securities and Exchange Commission was resolved in favor of Ripple, with a $125 million fine and dismissal of other claims. That legal clarity lifted investor sentiment, triggering increased buying and spiking XRP’s price. 

However, the rally quickly cooled as traders booked profits and liquidity providers widened their spreads ahead of the inflation data. XRP reached around $3.33 on heavy volume before reversing, closing lower. In the following days, the price slipped by 2 to 5 percent as market participants reduced exposure before key inflation numbers arrived. 

While the legal outcome improved XRP’s medium-term outlook, its short-term path is now tied to broader dollar and rate movements, forces that tend to pressure altcoins harder than Bitcoin when inflation remains resilient.

Why Inflation Could Derail Crypto’s Momentum

Earlier crypto rallies leaned heavily on three factors: optimism about Federal Reserve rate cuts, growing institutional adoption especially via spot Bitcoin ETFs, and clarity on regulatory or legal matters reducing headline risk. Inflation threatens all three. 

Sticky core inflation may force the Federal reserve to pull back on cutting rates, raising real yields and denting speculative demand. Higher real yields and a strong dollar can reduce the appeal of crypto as a speculative asset. Early August ETF outflows offered a real-time example of how fragile investor sentiment can be amid macro uncertainty. 

Also, there are hints of broad inflation weakness concentrated in housing, still high, and service categories outside housing. If input costs rise further, especially in labor-heavy services or goods impacted by tariffs, the Fed’s preferred inflation gauge might stay elevated, delaying policy relief that crypto markets are counting on.

What Comes Next

Key indicators to watch include the Producer Price Index, due soon. If PPI shows inflation gaining, especially in services or tariff-hit sectors, it could signal a sluggish path for consumer inflation, making rate cuts less likely. Another important factor will be ETF flows. If inflows resume after early-month outflows, dips may become shallower. 

Persistent withdrawals would leave crypto much more vulnerable to macro shocks. For XRP, renewed liquidity, narrower spreads, deeper markets, more venue listings, would help reduce volatility heading into the next big macro trigger. Bitcoin traders will be watching option market indicators around the $118,000-$122,000 range to gauge risk appetite and hedging demand. Price moves around PPI release dates and the next trading sessions will likely be volatile.

Also Read - Why Investors Should Be Careful with XRP in the Coming Months?

Final Thoughts

The recent pullback in Bitcoin and XRP underlines how closely crypto markets track inflation expectations today. Headline inflation eased as expected, but a core rate of 3.1 percent signals caution for monetary policy. Bitcoin’s bounce to new highs after the consumer price data shows how quickly the rally can revive if easing hope re-emerges. 

Early-August ETF outflows and XRP’s post-settlement profit-taking highlight how vulnerable speculation remains to shifts in macro sentiment. Producer prices and flow data in the coming days will likely determine whether the summer rally continues or gives way to a choppier phase driven by enduring inflation pressures.

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