Bitcoin (BTC) investors were treated to some encouraging economic news on Wednesday, as the government reported a significant slowdown in US inflation.
Indeed, after the report, bitcoin price quickly shot up to almost $31,000. It did not last long. At press time, BTC had fallen back below $30,500, down more than 1% from before the Consumer Price Index (CPI) data was released.
The report showed that consumer prices rose 3% year-on-year in June, compared to a 4% increase in May. Even better, the core rate – which excludes food and energy prices – slowed to a 4.8% rise after stubbornly holding above 5% at the start of 2023.
With rapid inflation being one of the headwinds that caused bitcoin to plummet from its November 2021 peak of nearly $70,000, easing inflationary risks appear supportive. That this did not happen today raises some problems.
First, it is perhaps another of many Covid-era inflation fakes. Remember the “temporary” phase of 2021 when the Federal Reserve was convinced it didn’t need to react to rising inflation, assuming it was a temporary outlier? The Wall Street Journal’s Nick Timiraos, commenting on the CPI this morning, recalled the July and August 2021 inflation reports appearing to confirm this hypothesis, before subsequent data said otherwise. Timiraos does not expect this morning’s data alone to put the Fed off its path of further rate hikes in 2023.
Second, there was more news today than just CPI. On-chain data this morning showed that two wallets marked as US government property and linked to confiscated bitcoin holdings from the Silk Road marketplace moved 9,825 bitcoin ($301 million) in three transactions . This selling pressure may have more than offset any good inflation news.
Do you expect US inflation to slow down?
After all, the markets anticipate. The price of bitcoin is up more than 20% since mid-June. While it’s widely believed that BlackRock’s spot ETF filing (and subsequent filings by a number of other asset managers including Fidelity) was the catalyst, part of the rally may have come as markets sniffed out June’s improved inflation report. As Timiraos further noted, observers have been talking about a significant weakening of some CPI components for some time.
Perhaps doubly frustrating bitcoin bulls today is that traditional markets appear to have fully embraced the weaker inflation report. The dollar index is down more than 1%, which is exactly what might be expected once inflation concerns and the chances of future Fed rate hikes ease. The 10-year Treasury yield fell a whopping 13 basis points (0.13%) to 3.84% and the 2-year Treasury yield fell the same amount to 4.74%. And while Bitcoin is down Wednesday, both the Nasdaq and S&P 500 are up about 1% to make new all-time highs.
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