Bitcoin (BTC) investors welcomed news when the Consumer Price Index (CPI) released on the 12th revealed a significant slowdown in US inflation.
Bitcoin Price Falls After Temporary Rise
After the CPI announcement, the Bitcoin price surged to nearly $31,000 (approximately 4.34 million yen, equivalent to approximately 140 yen to the dollar), but it did not last long. As of this writing, Bitcoin is trading below $30,500, down more than 1% from its pre-CPI release level.
The CPI in May was up 4% year-on-year, but in June it rose just 3%. Moreover, core CPI, which excludes food and energy, has remained above 5% since the beginning of the year, but has slowed to 4.8% this time around.
Rapid inflation has been cited as one of the factors behind Bitcoin’s fall from its November 2021 high of around $70,000, so lower inflation risk is likely to drive prices higher. That this didn’t happen this time raises a few issues.
The view that there will be no change to the course of further interest rate hikes in 2023
First of all, this is probably the head fake (the price moves in the opposite direction after temporarily moving in accordance with theory) due to inflation data, which was often seen during the corona period. Remember the 2021 “transitional” phase when the Fed thought it needed no action, given the expectation that inflation would only rise temporarily? Nick Timiraos of The Wall Street Journal (WSJ) said the CPI announcement appeared to support the temporary hypothesis, but later data overturned July 2021. He recalled the August inflation report. He doesn’t expect the Fed to change its course for further rate hikes in 2023 because of the CPI alone.
Bitcoin seized by U.S. government to be sold
Secondly, there was news other than the CPI announcement this time. An analysis of on-chain data on the morning of the 12th showed that three transactions (transactions ) shows that 9825 BTC (about 42.14 billion yen) was transferred. This selling pressure may have done more than wipe out the good news about inflation.
Market expects inflation to slow
Finally, the market expects US inflation to slow. Bitcoin price has risen more than 20% since mid-June. The catalyst in general was the filing of a Bitcoin ETF (exchange traded fund) by BlackRock, the world’s largest asset manager (and subsequent filings by other asset managers such as Fidelity). However, some of the bullish action may have come as the market sniffed out an improvement in June’s inflation report. Timiraos also noted that a significant softening of some CPI components had been discussed for some time.
Traditional markets rise
Doubly frustrating for Bitcoin bulls this time around is that traditional financial markets seem to have accepted the weak inflation report perfectly. The dollar index is down more than 1%, which is what you might expect when inflation worries and the accompanying likelihood of future Fed rate hikes recede. The 10-year yield fell 13 basis points (0.13%) to 3.84%, while the 2-year yield fell by a similar amount to 4.74%. While bitcoin fell on Thursday, the Nasdaq Composite and S&P 500 both rose about 1% to new all-time highs.
｜Editing: Rinan Hayashi
｜Original: Even as Inflation Risk Fades, Bitcoin Remains Stuck Below $31K