ETFs
Bitcoin flirts with $70,000 again amid respite from inflation ahead of Fed meeting
Key takeaways
- Bitcoin rallied to nearly $70,000 after better-than-expected inflation data.
- Lower inflation data is considered 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 lower bond yields, making risky assets such as bitcoin more attractive to investors.
- The U.S. Bitcoin spot exchange-traded fund (ETF) market saw total outflows of around $265 million on Monday and Tuesday as the price of the cryptocurrency fell.
The price of Bitcoin (BTC) hit nearly $70,000 on Wednesday as investors rejoiced in better-than-expected inflation data for May, which raised hopes of a rate cut by the U.S. Federal Reserve.
United States Consumer Price Index (CPI) published Wednesday Morning showed that prices remained unchanged month over month and increased at an annual rate of 3.3%, slower than 12 months ago.
The Fed is expected to announce a rate decision on Wednesday. Although there are no plans to cut rates, the latest inflation report gives him more room to act on rates when he decides to cut them.
Why Do Bitcoin Investors Care About Inflation or the Fed?
Bitcoin prices took inspiration from Wednesday’s inflation report, reversing their downward trend from Friday to approach the $70,000 level. As of 12:30 p.m. ET, bitcoin was trading at $69,359.30.
With inflation trending downward, data dependent Federal Reserve has more reason to consider lowering interest rates. The Fed’s rate-raising campaign to combat inflation has pushed rates to their highest level in 23 years.
Why is this important for Bitcoin investors?
Although bitcoin is often presented as a sort of safe haven asset, the reality is that it still acts as a safe haven. risky assetas indicated by the rise in prices after the release of lower inflation figures.
Bond yields have also surged amid rising rates, meaning bonds – a relatively less risky asset – also offer a good yield, making them more attractive to investors. Lower interest rates that follow a Fed rate cut will likely lower bond yields, which could prompt investors to bet on risky assets like crypto in search of higher returns.
Will investors in Bitcoin ETFs reverse the trend?
Looking ahead to Wednesday’s and subsequent inflation data Fed meeting, Bitcoin investors were getting nervous. Not only has the price of the cryptocurrency skidded, but Bitcoin spot exchange-traded funds (ETFs) have also seen investors withdraw money.
According to data from Farside Investors, Bitcoin Spot ETF recorded outflows of around $265 million for the first two days of this week.
This is a clear trend reversal, as spot Bitcoin ETFs saw net inflows in each of the previous 20 days. That said, much of this previous influx was due to an arbitrage opportunity found by traders between ETFs and the futures market, according to BitMEX Research.
Ahead of the Fed’s next interest rate policy decision later Wednesday, the CME FedWatch tool indicated a 99.9% chance that rates will remain unchanged.