Bitcoin Slides on Hot Inflation Data: Key BTC Levels and $120K Path After Liquidations

Bitcoin (BTC) has gone down by more than 3% in the past 7 days, triggering a wave of liquidations as the latest downturn has pushed the top crypto below key levels.

Richmond Lee, CFA and Senior Market Analyst at PU Prime, commented:

“Bitcoin faced a sharp pullback after the U.S. PCE Price Index rose 2.6% year-on-year—above the market’s 2.5% forecast—triggering renewed fears that the Federal Reserve may delay rate cuts further. The inflation surprise sent bond yields higher and risk appetite lower, pushing BTC down from near $119,000 to as low as $115,000, reflecting a broader de-risking across financial markets.
This drop reinforces Bitcoin’s increasing sensitivity to macroeconomic indicators. As its correlation with traditional risk assets like equities remains elevated, the market now treats Bitcoin less as a niche alternative and more as a mainstream macro-driven asset. Near-term sentiment is likely to stay fragile as investors reassess the Fed’s policy path and the broader inflation trajectory.

Still, the medium-term outlook for BTC remains fundamentally bullish. Regulatory developments in the U.S.—including debates on the Clarity Act and potential crypto-specific legislation—are creating a more transparent framework that could accelerate institutional adoption. Simultaneously, continued ETF inflows, stablecoin growth, and increasing use of Bitcoin as a treasury reserve asset point toward deepening long-term demand.
With the U.S. dollar still trading below its 200-day moving average and signs of improving risk appetite globally, BTC could regain upward momentum once inflation moderates and policy clarity improves. While short-term volatility persists, the structural case for Bitcoin as a hedge against fiat erosion and monetary instability remains intact.”

Total Crypto Liquidations – Source: CoinGlass

Crypto liquidations on July 31 jumped to $922 million – the majority of which were attributed to Bitcoin’s long positions. Meanwhile, between July 27 and August 1, an eye-popping total of $2.45 billion worth of long positions were flushed out of the market as Bitcoin declined by 7.5%.

This shows how overleveraged and one-sided this market is and how investors’ sentiment is dominated by FOMO primarily as the top crypto made a new all-time high.

U.S. Economic Data Favors Bullish Outlook for Bitcoin

Last week, the Federal Reserve opted, as expected, not to succumb to President Trump’s pressure and left rates unchanged.

Analysts were expecting this outcome as the U.S. central bank affirmed its commitment to a “wait and see” approach, especially as Trump’s reciprocal tariffs on key commercial allies like China, Mexico, and Canada just kicked in.

Apart from the Fed’s interest rate decision, several key economic metrics flooded the market last week. The gross domestic product (GDP) for the second quarter was one of the most notable releases as the U.S. economy grew by 3% compared to the same quarter a year ago. This figure was 60 basis points above analysts’ expectations.

Meanwhile, unemployment rose by 10 basis points and non-farm payrolls came in at 73,000 for June – a significant miss compared to the consensus forecast of 110,000 for this period.

Finally, the annualized PCE Price Index, the indicator tracked by the Fed to measure inflationary pressures, rose by 2.6% compared to the same period a year ago – a 10 basis points increase above analysts’ consensus estimate for the period.

GDP Quarter-on-Quarter Growth (Q2/2025) – Source: U.S. Bureau of Economic Analysis

To summarize what this means, the U.S. economy is growing but so is inflation. Meanwhile, this growth was the result of a significant spike in imports (5% QoQ jump) as companies rushed to purchase as much as possible before the new tariffs kicked in. Meanwhile, investments dropped by nearly 3% while consumer spending rose by 1%.

These numbers may have spooked the market and could have caused a risk-off move as higher inflation means that the Fed may postpone its planned interest rate cuts for the year, especially as the job market is weak, economic growth figures are misleading, and inflation is rising.

In this environment, even though it may seem counterintuitive, Bitcoin could explode and rise to much higher levels as investors turn to financial assets that can protect the purchasing power of their U.S. dollars.

BTC Recovered Strongly During the Weekend

Looking at BTC’s 4-hour chart, we can see that the token has bounced strongly already upon hitting the $112K area. These are areas where big order blocks have formed in the past and any remaining unfilled orders from that time could still trigger a significant spike in the price of BTC.

BTC/USD 4-Hour Chart (BitStamp) – Source: TradingView

The price action has made a strong comeback during the weekend and has broken above a former support level that should have turned into resistance. However, the market is apparently ignoring this level’s bearish bias and seems determined to keep pushing prices higher during the American session.

If this ascent continues, the most likely target would be the $120,000 area first. A bullish breakout has already been confirmed but investors may wait for a pullback to the $114,000 area to enter a long position at a more attractive price.