While bitcoin has rebounded somewhat from 10-week lows seen early Thursday, analysts say the relief could be short-lived.

The leading cryptocurrency by market value is changing hands near $48,700 at press time, having printed a low of $46,294 during the Asian hours. That was the lowest price since March 1, according to CoinDesk 20 data.

The drop to multi-week lows happened after Tesla CEO Elon Musk announced on Twitter that the electric car maker has suspended BTC payments for its vehicles over the environmental cost of mining.

Despite the latest recovery, bitcoin is still down 10% on a 24-hour basis and trading at least 25% lower from record highs above $64,000 reached in mid-April.

According to Joel Kruger, currency strategist at LMAX Digital, the possibility of a deeper correction cannot be ruled out. “Fundamentally, the risk-off in markets could have a weighing influence,” he said.

Global financial markets have turned risk-averse in the past 24 hours on fears the Federal Reserve may scale back stimulus sooner than expected to contain inflation, and the dour mood looks set to continue.

The central bank’s massive monetary easing efforts have been primarily responsible for the unprecedented risk taking seen across all corners of the financial market over the past 12 months.

The Fed reduced rates to a record low of 0.25% a year ago and has been buying bonds worth $120 billion per month to support the economy and markets amid the coronavirus pandemic. Bitcoin has charted a fivefold rally since April 2020.

However, with inflation running hot, the U.S. central bank now looks to be running out of ways to keep the liquidity tap flowing.

Official data released Wednesday showed the U.S. consumer price index (CPI), which measures a basket of goods and energy and housing costs, rose 4.2% year on year in April, marking the fastest inflation rise in 12 years.

Bitcoin fell from $55,000 to $53,000 after the data was revealed, then extended losses following Musk’s tweet. U.S. stocks also suffered sharp losses and look set to begin Thursday on a negative note. Futures tied to the S&P 500 are trading 0.5% lower at press time.

“A combination of weaker than expected payroll [data] and much higher CPI suggests stagflation [high inflation and low growth], which has subsequently reined in the bulls, equally in equity markets and digital assets space,” said Denis Vinokourov, head of research at Synergia Capital.

Data from the rates markets shows traders are ratcheting up the odds of an interest rate hike in 2022 in response to high inflation. According to Bloomberg, eurodollar futures contracts are now pricing in more than an 80% likelihood of a quarter-point rate hike by the end of 2022, up from a two-in-three chance at the beginning of the week.

Also read: Bitcoin Plunges as Tesla Halts BTC Payments Over Environmental Concerns

Thus, the immediate prospects for bitcoin and other asset classes look bleak. “If the rate hike expectations do not subside, market participants will be keenly looking for any evolution of trends surrounding central bank liquidity and whether bitcoin flows actually benefits from higher inflation,” Vinokourov said. “For all the talk of bitcoin being a hedge against inflation, up to now its existence was in a very low-inflation environment.”

Technical charts also suggest scope for a deeper pullback for bitcoin.

“The monthly relative strength index is still showing highly overbought conditions, and this latest breakdown below what had been support at $47,000 now exposes the possibility for a measured move downside extension back into the $34,000 area,” Kruger said.

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