Bitcoin's Bearish Divergence from PCE Inflation: A Cautionary Tale of Support Breakdowns and Macroeconomic Headwinds

The recent divergence between Bitcoin's price action and U.S. PCE inflation trends has sparked intense debate among investors. While the Federal Reserve's preferred inflation metric—core PCE—remained stubbornly above its 2% target at 2.9% year-over-year in August 2025U.S. core PCE inflation holds at 2.9% in August as Fed weighs further rate cuts^[1], Bitcoin's price has cratered below $110,000, a level it last held in late JulyBitcoin Plunges Below $110,000 as Accelerating PCE Inflation and Institutional Exits Rock Crypto Markets^[2]. This dislocation raises critical questions about the cryptocurrency's role as a macroeconomic hedge and underscores the growing bearish momentum in the market.

PCE Inflation: A Lingering Drag on Risk Assets

The U.S. core PCE inflation rate, which excludes volatile food and energy prices, has stagnated at 2.9% since July 2025U.S. core PCE inflation holds at 2.9% in August as Fed weighs further rate cuts^[1]. While this represents a cooling from the 7% peaks of 2022, it still leaves the Federal Reserve in a precarious position. As stated by a report from CNBC, the Fed is “balancing the need to address inflation with labor market concerns,” a duality that has kept interest rates elevated and financial conditions tighter than expectedAugust 2025 PCE: 2.7% Rise Signals Steady Inflation^[3]. For Bitcoin, a non-yielding asset, this environment has been toxic.

Historically, Bitcoin has shown a strong inverse correlation with interest rates. When the Fed signals prolonged high rates, risk-off sentiment dominates, and Bitcoin's appeal as a speculative bet wanesHow Inflation Reports Move Bitcoin Prices: CPI’s Impact^[4]. The August PCE data, while not a surprise, reinforced the market's expectation that rate cuts would remain delayed. This was immediately reflected in Bitcoin's price action, which dropped below $110,000 in early September amid institutional profit-taking and ETF outflowsUS PCE Inflation Data Ignores Bitcoin Dipping Under $109,000^[5].

Bearish Momentum: Technical Breakdowns and RSI Divergence

Bitcoin's technical picture has deteriorated sharply in September 2025. Key support levels have been sequentially breached, with the $112,000 zone giving way in mid-SeptemberHow Low Can Bitcoin Go in September 2025? Bearish BTC Price Prediction Scenarios Support Analysis^[6]. By late September, the price had tested $107,000 and was flirting with the critical $100,000 psychological floorBitcoin at a Crossroads – Critical Price Levels That Could Define September 25, 2025^[7]. A report by BeInCrypto highlights a bearish RSI divergence: the indicator formed higher highs while Bitcoin recorded lower highs, a classic sign of weakening bullish momentumCritical Bitcoin Price Level At Risk As Bearish Pattern Emerges^[8].

The breakdown of the $110,000 level is particularly concerning. This level had acted as a buffer since July, but its collapse has exposed deeper support zones. According to Financemagnates, a failure to hold above $105,000 could trigger a retest of the $100,000–$104,000 range, with some analysts warning of a potential drop to $78,000 in extreme scenariosHow Low Can Bitcoin Go in September 2025? Bearish BTC^[9]. The 200-day EMA, a key technical benchmark, now aligns with the $100,000 level, adding gravity to its significanceBitcoin Holds $109K as Traders Await PCE Inflation Report^[10].

Historical backtesting of support-level breakdowns from 2022 to 2025 reveals that such events alone have limited predictive power, with median 30-day returns of +3.0% and a win rate of approximately 55%. This suggests that while support breakdowns are often cited as bearish signals, they require complementary filters (e.g., volume surges, macroeconomic triggers) to improve reliabilityBitcoin (BTC) Price Prediction: What To Expect In September?^[11].

Macroeconomic Headwinds and Institutional Sentiment

The bearish narrative is further reinforced by macroeconomic headwinds. The “September Effect,” a historical trend of weak Bitcoin performance since 2013Bitcoin (BTC) Price Prediction: What To Expect In September?^[11], has coincided with rising PCE inflation and shifting institutional sentiment. Spot Bitcoin ETFs have recorded outflows, while open interest in futures contracts has declinedU.S. Core PCE at 2.9% in August – Path for Bitcoin?^[12]. Meanwhile, large whales have been moving Bitcoin to exchanges, signaling potential selling pressureBitcoin Could Crash to $107K, XRP MACD Bearish Ahead of Fed Speak & PCE Inflation^[13].

Institutional capital withdrawal has compounded the downward spiral. Over $1.5 billion in leveraged long positions were liquidated in a single week in late SeptemberUS PCE Inflation Data Fails to Stop Bitcoin Dipping Under $109,000^[14], exacerbating the price decline. This deleveraging event, combined with the Fed's cautious stance, has created a self-fulfilling prophecy: weaker Bitcoin prices attract more short sellers, further pressuring the market.

Path Forward: A Race Against the Clock

Bitcoin's immediate future hinges on its ability to defend the $107,000–$108,000 support zoneBitcoin Price Forecast for August 2025: Is It Time to Invest?^[15]. A sustained rebound above $113,000 would invalidate the bearish RSI divergence and reignite bullish momentumBitcoin Key Support Levels to Watch Today^[16]. However, a breakdown below $100,000 could trigger a wave of panic selling, particularly as the 2025 halving cycle's bullish narrative fades.

The Federal Reserve's next move will be pivotal. If inflation continues to ease and rate cuts materialize in Q4 2025, Bitcoin could stage a recovery. But until then, the market remains in a bearish consolidation phase, with technical indicators and macroeconomic trends aligned against a near-term rally.

Conclusion

Bitcoin's recent divergence from PCE inflation trends highlights the fragility of its macroeconomic narrative. While the cryptocurrency once positioned itself as a hedge against inflation, the current environment—marked by stubborn inflation, delayed rate cuts, and institutional outflows—has turned it into a victim of its own volatility. Investors must remain vigilant, monitoring key support levels and Fed policy shifts. For now, the bearish momentum is unrelenting, and the path to $140,000 feels increasingly distant.