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Bitcoin flirts with $70,000 again amid inflation lull ahead of Fed meeting
Key points
- Bitcoin returned to nearly $70,000 after better-than-expected inflation data.
- The colder 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 drag down bond yields, making risky assets like bitcoin more attractive to investors.
- The U.S. spot market for bitcoin exchange-traded funds (ETFs) saw total outflows of about $265 million on Monday and Tuesday, as the cryptocurrency’s price fell.
The price of Bitcoin (Bitcoin) rose to nearly $70,000 on Wednesday as investors welcomed better-than-expected May inflation data, which raised hopes of a rate cut by the U.S. Federal Reserve.
Consumer price index in the United States The data (CPI) was released on Wednesday The morning showed that prices remained unchanged month on month and rose at an annual pace of 3.3%, slower than 12 months earlier.
The Fed will announce a rate decision on Wednesday. While a rate cut is not expected, the latest inflation report gives him more leeway to act on rates when he decides to lower them.
Why do Bitcoin investors care about inflation or the Fed?
Bitcoin prices took a cue from Wednesday’s inflation report, reversing Friday’s downtrend to come within striking distance of the $70,000 level. As of 12:30 pm ET, bitcoin was trading at $69,359.30.
With inflation trending downward, the situation depends on the data Federal Reserve has more reasons to consider reducing interest rates. The Fed’s rate-hiking campaign to fight inflation has pushed rates to 23-year highs.
Because it is important? bitcoin investors?
Although bitcoin is often touted as a kind of safe haven asset, the reality is that it still acts as a safe haven asset risk activitiesas indicated by rising prices following the release of colder inflation data.
Bond yield they also rose in a higher rate environment, meaning bonds – a relatively less risky asset – also offer a good return, making them more attractive to investors. Lower interest rates following a Fed rate cut will likely drag bond yields lower, potentially tempting investors to bet on risky assets like cryptocurrencies in search of higher returns.
Will Bitcoin ETF investors reverse course?
In the run-up to Wednesday’s inflation data and after Fed meeting, bitcoin investors were getting nervous. Not only has the price of the cryptocurrency plummeted, but bitcoin exchange-traded funds (ETFs) have also seen investors withdraw money.
According to data from Farside Investors, Spot Bitcoin ETF recorded outflows of about $265 million in the first two days of this week.
This was a clear turnaround, as spot bitcoin ETFs had seen net inflows in each of the previous 20 days. That said, much of this previous inflow was due to an arbitrage opportunity that traders found between the ETFs and the futures market. according to BitMEX research.
Ahead of the Fed’s impending decision on interest rate policy on Wednesday, the CME’s FedWatch Tool indicated a 99.9% chance that rates will remain unchanged.