Bitcoin Seesaws Back Under $26K After CPI, as Investors Await Fed Rate Hike Decision

Bitcoin, at least temporarily, liked the sound of falling inflation as it was reflected by the release of Tuesday’s Consumer Price Index (CPI).

The largest cryptocurrency by market value traded at $25,846, up 0.2% in the last 24 hours. It was down from the $26,000 high it reached in the hour following the announcement of the U.S. Bureau of Labor Statistics that the CPI rose 4%. This was better than the expected 4.1%, and April’s 4.9%.

BTC was stuck below $26,000 during the last four days, as investors put aside their anger over the Securities and Exchange Commission’s (SEC) lawsuits filed against Binance and Coinbase and awaited Wednesday’s Federal Reserve rate decision.

It now appears likely that the Fed will end its year-long campaign to be a monetary hawk. The CPI was at 8.6% a year earlier, which prompted the Federal Reserve Board to increase the Federal Funds Rate by 75 basis points. This sent risky assets into a spiral.

Tim Frost, CEO at Yield App’s digital wealth platform wrote to CoinDesk that while today’s news is positive for the U.S. economic and Bitcoin, any jitters from the interest rate decision tomorrow or the recession looming on the U.S. horizon will also be beneficial for crypto assets. Even altcoins that have fallen up to 30 percent in the last week will benefit.

Frost said that the SEC lawsuits had given ‘certainty to the markets’ by ending speculation over whether the agency would bring legal action against the two most prominent crypto businesses. The suits could also force regulators and courts to decide whether cryptos should be classified as commodities, securities or other.

Frost wrote that ‘with U.S. Investors perhaps now largely shaking out of these Assets, we could start to see a fresh investment in tokens, which is not linked at all to the US Economy or US Policies’.

Ether, second in market capitalization, initially rose before reversing some of the gains. ETH traded at around $1,735, which is roughly the same price as Monday. ALG and MATIC, tokens from the Polygon and Algorand blockchains for smart contracts, have recently increased by 0.3% and 0.8% respectively, while AXIE is the native crypto currency of Axie Infinity’s gaming platform. Binance’s BNB has recently risen by 3.3%. The CoinDesk Market Index is a measure for the overall performance of the market. It was up by 0.3%.

The CPI report also boosted major stock indexes, with the tech-heavy Nasdaq Composite rising by 0.8%, and the S&P 500 up 0.6%. The yield on U.S. Treasury 10-year bonds rose to a robust 3.8%. Brent crude oil, which is a measure of the energy markets, fell slightly to $73 per barrel.

Oliver Rust of Truflation, an independent data provider for inflation, wrote to CoinDesk in which he noted that energy prices, inflation, and the overall readings had all declined, with some faintly encouraging signs indicating that the hot job market is cooling. Crypto assets have been consistently unnerved by unexpected changes in macroeconomic indicators. Rust wrote that the economy was heading towards negative growth for at least a quarter.

He wrote: ‘Technically, a recession is defined as two consecutive quarters with negative growth.’ If GDP growth continues to decline in Q2, then the U.S. is on shaky grounds. Central Bank officials will have to shift their focus from reducing the inflation rate to preventing a recession. This is especially true with the upcoming 2024 US Presidential election campaign. We believe that this goal is achievable with interest rates currently at their current levels. However, higher rates may be the final straw.