Bitcoin
Bitcoin flirts with $70,000 again amid inflation lull ahead of Fed meeting
Key Takeaways
- Bitcoin rose back to nearly $70,000 after better-than-expected inflation data.
- Cooler inflation data is seen as positive for bitcoin as market participants interpret it as a sign that the Federal Reserve is more likely to cut interest rates.
- Lower rates will reduce bond yields, making risky assets like bitcoin more attractive to investors.
- The U.S. bitcoin exchange-traded fund (ETF) spot market saw a total of about $265 million in outflows on Monday and Tuesday as the cryptocurrency’s price fell.
Bitcoin Price (Bitcoin) rose to nearly $70,000 on Wednesday as investors cheered better-than-expected inflation data for May that raised hopes of a rate cut by the U.S. Federal Reserve.
US Consumer Price Index Data (CPI) released Wednesday The morning showed that prices remained unchanged month over month and rose at an annual pace of 3.3%, slower than in the previous 12 months.
The Fed is expected to announce a rate decision on Wednesday. While he is not expected to cut rates, the latest inflation report gives him more leeway to move rates forward when he decides to lower them.
Why do Bitcoin investors care about inflation or the Fed?
Bitcoin prices followed suit with Wednesday’s inflation report, reversing Friday’s downtrend to get close to the $70,000 level. At 12:30 pm ET, bitcoin was trading at $69,359.30.
With inflation trending lower, the data-dependent sector Federal Reserve has more reason to consider reducing interest rates. The Fed’s rate hike campaign to combat inflation has pushed rates to 23-year highs.
Why does this matter to bitcoin investors?
Although bitcoin is often touted as a sort of safe-haven asset, the reality is that it still acts as a risk assetas indicated by rising prices following the release of colder inflation numbers.
Bond Yields They have also risen in a context of higher rates, which means that bonds – a relatively less risky asset – also offer a good return, making them more attractive to investors. Lower interest rates that follow a Fed rate cut will likely lower bond yields, potentially tempting investors to bet on risky assets like cryptocurrencies in search of higher returns.
Will Bitcoin ETF investors reverse course?
In preparation for Wednesday and subsequent inflation data Fed meeting, bitcoin investors were getting nervous. Not only did the cryptocurrency’s price slide, but bitcoin exchange-traded funds (ETFs) also caused investors to withdraw money.
According to data from Farside Investors, Spot bitcoin ETFs recorded about $265 million in outflows in the first two days of this week.
This was a clear trend reversal as spot bitcoin ETFs recorded net inflows in each of the previous 20 days. That said, much of this earlier entry was due to an arbitrage opportunity that traders found between ETFs and the futures market, according to BitMEX research.
Ahead of the Fed’s next interest rate policy decision on Wednesday, the CME FedWatch tool indicated a 99.9% chance that rates will remain unchanged.