Bitcoin struggles with heightened volatility as US tariffs and Fed policy fuel market uncertainty: analysts

Bitcoin has seen sharp price fluctuations over the past 24 hours, dipping to a local low of $95,000 early Wednesday before recovering slightly to trade around $96,500 at the time of writing. CoinGecko data indicates that the global cryptocurrency market cap now stands at $3.28 trillion, marking a 3.5% decline over the last day.

Bitwise analysts highlight the growing divide between institutional buyers and bearish retail sentiment as a key driver of bitcoin’s current price volatility. "While retail investors are in outright panic mode, institutional investors are buying bitcoin hand over fist," Bitwise analysts said. "Retail sentiment is bad in crypto right now, and to me, that signals opportunity."

The latest price action comes amid the Trump administration's on Monday imposed a 25% tariff on all steel and aluminum imports into the United States with no exceptions or exemptions. Additionally, a 25% tariff was announced on select imports from Canada and Mexico, along with a 10% tariff on Chinese goods.

QCP Capital analysts suggest that these protectionist measures have injected fresh uncertainty into global markets, affecting both traditional finance and digital assets. They pointed to Federal Reserve Chair Jerome Powell's testimony before the U.S. Senate on Wednesday, where he reinforced the Fed's stance of adopting a "wait-and-see" approach to rate cuts, alluding to a potentially slower pace of cuts in 2025. However, the analysts added that despite this hawkish tone, the U.S. Dollar Index (DXY) has failed to rally.

Declining DXY over the past month

The U.S. dollar index is down 1.54% in the past month, according to TradingView data . A weaker DXY alongside a hawkish Fed could influence liquidity conditions and investor sentiment in complex ways. Typically, a weaker DXY signals an increasing dollar supply relative to other currencies, which can be supportive of risk assets like bitcoin. However, if the Fed maintains a hawkish stance—keeping interest rates higher for longer—overall liquidity may remain constrained, limiting capital flows into risk assets compared to a more accommodative monetary policy.

QCP Capital analysts pointed to Wednesday's CPI release as a potential catalyst that could trigger a sharp move lower for the DXY, potentially benefiting risk assets. "We believe USD now faces greater downside risk, and any positive CPI news could force USD longs to unwind their positions en masse, potentially sending risk assets higher," the analysts said.

FXTM senior analyst Lukman Otunuga said the combination of fresh tariffs, Fed Chair Powell’s testimony, and key inflation data creates a perfect storm for market volatility . "If tariffs fuel inflation fears, the Fed may be forced into a more hawkish stance, adding further uncertainty, an investors should brace for major moves in the dollar, equities, and gold." Otunuga said.