Bitcoin (BTC) ran into selling pressure on May 31 after US Federal Reserve (Fed) officials said there was no compelling case to stop liquidity tightening. The Fed’s relentless tightening has shaken risk assets, including crypto assets (virtual currencies).
“I don’t see a compelling reason to pause,” Federal Reserve Bank of Cleveland Governor Loretta Mester told the Financial Times in an interview published Wednesday. “I think it makes more sense to raise interest rates and then hold them for a while until the economic uncertainty fades,” Mester added.
Bitcoin, which is subject to dollar liquidity, fell nearly 2% to $27,021 after Mester’s comments were released, according to CoinDesk data.
Futures tracking the Nasdaq, Wall Street’s tech index, fell 0.38%, signaling a drop in the market on Thursday. The Dollar Index, which tracks the value of the US dollar against major fiat currencies, rose 0.27% to 104.40. Gold held firm, trading 0.2% higher at $1,962 an ounce.
To curb inflation, the Fed will raise interest rates by 500 basis points to 5% from March 2022. Mester’s support for another rate hike and long-term rate hike stance comes after hotter-than-expected inflation data, confirming the recent hawkish reassessment of US interest rate expectations.
Official data released on May 26 showed the Fed’s favorite measure of inflation, the Personal Consumption Expenditures (PCE) core price index, rising from 4.2% in March to 4.4% in April, while U.S. It was shown to have increased more than expected in April. In federal funds rate futures, traders no longer expect the Fed to cut rates this year and are fully pricing in a 0.25% rate hike in June.
Over the past seven months, traders have consistently believed the Fed will pause rate hikes in the first half of 2023 and move on to liquidity-enhancing rate cuts in the second half. This is one of the big reasons why Bitcoin is up 65% year-to-date. Bitcoin hit a 10-month high of $31,000 in April. Meanwhile, the dollar index fell more than 12% in the seven months to April.
Mester said the debt ceiling deal removed “a large chunk of uncertainty” from the US economy.
President Joe Biden and House Speaker Kevin McCarthy have reached a tentative deal to raise the $31.4 trillion debt ceiling and avoid a default. Lawmakers now have to pass legislation related to the deal in the House and Senate.
Analysts told CoinDesk that if the deal is approved, the Treasury will begin issuing bonds to replenish its coffers, sucking dollar liquidity out of the system in the process. That generally makes for a bearish situation for risk assets.
｜Translation: coindesk JAPAN
｜Editing: Toshihiko Inoue
｜Original: Bitcoin Recedes to $27K as Fed’s Mester Favors Unabated Tightening