Bitcoin’s Reaction to US Inflation Data
The price of Bitcoin (BTC) witnessed a remarkable surge of over 5% to reach the $65,000 mark, following the release of US CPI inflation data indicating a slowdown in price pressures in April. This development has bolstered the belief that the Federal Reserve may implement multiple interest rate cuts by the end of 2024.
According to CoinDesk, the surge in Bitcoin’s price coincided with a 0.9% increase in the S&P 500, which achieved new all-time highs. Consequently, US bond yields and the US Dollar Index dropped to their lowest levels in a month. Traders are exhibiting high confidence in the likelihood of a rate cut by September, with CME data showing a 71% implied probability of at least one cut within the next month.
The Bitcoin price currently faces a critical technical hurdle at its 50-day moving average of $65,166. Surpassing this level and the May highs near $65,500 could pave the way for further short-term gains, with the late-April highs around $67,000 serving as the next significant milestone. A potential retest of the yearly highs around $73,000 could also be on the horizon.
Potential Impact of Inflation on Bitcoin
Concerns regarding a gradual uptick in inflation during Q1 2024 have posed challenges for Bitcoin in recent times. Persistent inflation pressures at the beginning of the year led to a reevaluation of aggressive Fed rate cut expectations by the markets, which partly contributed to Bitcoin’s stagnation post-reaching new highs close to $74,000.
Despite its consolidation within the $60,000 to $70,000 range, the latest inflation report offers some respite, suggesting that the early inflation surge may not be sustained. Should inflation worries diminish in the coming months, the macroeconomic environment could transition from being a drag on Bitcoin to potentially supporting its growth in the medium term.
Looking ahead, historical data indicates that May has not been a favorable month for Bitcoin performance in recent years. The post-halving rallies typically experience a delay of 4-6 months before gaining traction, implying a potential lack of significant upward movement until after August. However, the dynamics of 2024, being an election year, could introduce a shift, as markets tend to rally preceding elections, deviating from their usual bearish summer trends.
Long-term prospects for the Bitcoin price continue to lean towards the upside. Factors such as rate cuts, the halving, sustained government expenditure, and a rise in demand for spot Bitcoin ETFs could propel BTC above the $100,000 mark by 2024 or 2025.
– Market Analysts
