Bitcoin Drops as Inflation Concerns Take Hold

Following a brief decrease below $69,000, the value of Bitcoin rebounded to approximately $71,000.

Bitcoin falls $4.3K as CPI data exceeds expectations.

Bitcoin (BTC) experienced a 2.3% drop after Wall Street opened on March 12, as markets reacted to stubbornly high inflation in the United States and its potential impact on interest rate cuts in 2024.

Inflation Remains High Following CPI Data

Data from Blocking.net Markets Pro and TradingView shows that BTC dropped as much as 6% after reaching a new all-time high at $73,054 on March 12, bottoming out at $68,636 on Bitstamp.

The drop in BTC price was a reaction to the release of the February Consumer Price Index (CPI) data, which came in higher than expected at 0.4% for February, according to the U.S. Bureau of Labor Statistics (BLS). The year-on-year rate increased to 3.2%, surpassing estimates of 3.1% and January’s 3.1%.

Rising shelter and gasoline costs contributed more than 60% to the monthly increase in the all-items CPI index, according to the BLS.

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Speculation on Fed Rate Cuts

Following the release of the CPI data, market participants began discussing the possibility of the Federal Reserve lowering interest rates in the coming months. Traders, according to the CME’s FedWatch tool, currently place the odds of a March rate cut at just 1%, compared to 15% on Feb. 12. This suggests that market participants believe the U.S. central bank will maintain rates in March and May, with a potential cut in June.

JPMorgan Chase CEO Jamie Dimon expressed his preference for the Fed to delay rate cuts until later in the year. Speaking at the Australian Financial Review business summit in Sydney, Dimon stated, “You can always cut it quickly and dramatically… their (the Fed) credibility is a little bit at stake here; I would even wait past June and let it all sort out.” He cautioned that rates may remain higher for some time and emphasized that any decision by the Fed should be based on data.

In a March 12 post on X social media platform, trading resource The Kobeissi Letter sarcastically questioned, “Thought inflation was gone?” They shared a chart showing that the inflation of core services excluding shelter had jumped by 0.7% month-over-month, the largest increase since September 2022. In February, this metric increased by another 0.5% month-over-month after multiple increases in 2023.

Inflation Data vs. ETF Inflows and Upcoming Halving

The continuation of inflows into spot Bitcoin exchange-traded funds (ETFs) has helped stabilize the cryptocurrency market amid concerns about inflation. The price of Bitcoin has recovered above $71,000, with last week’s inflows into spot Bitcoin ETFs amounting to approximately “55.78K BTC ($3.68B) of inflows,” according to data from crypto intelligence firm Arkham.

Data from Farside Investors shows positive trends of increasing ETF flows, with “half a billion of net inflows” on March 11. BlackRock, with $562 million, Fidelity, with $215 million, and VanEck, with $118.8 million, were notable contributors to these inflows. However, Grayscale Bitcoin Trust (GBTC) experienced outflows of $494.1 million on March 11, its highest daily volume of capital withdrawals since January 23.

Overall, while inflation concerns have put pressure on Bitcoin, the inflows into spot Bitcoin ETFs have helped offset the sell-off. The market is eagerly watching for any potential rate cuts by the Federal Reserve, which could have significant implications for Bitcoin and other cryptocurrencies.

Q&A

Q: How does inflation affect Bitcoin’s price?

A: Inflation concerns can lead to a decrease in confidence in fiat currencies and a desire for alternative stores of value. As a decentralized and limited supply asset, Bitcoin is often seen as a hedge against inflation. When inflation rates are high, investors may turn to Bitcoin as a means of protecting their wealth. However, if the inflation concerns are severe and lead to broader market sell-offs, this can temporarily impact Bitcoin’s price.

Q: Will Bitcoin’s price continue to be affected by inflation concerns in the future?

A: Inflation concerns will likely remain a relevant factor for Bitcoin’s price in the future. As long as there are uncertainties around inflation rates and potential actions by central banks, investors will continue to analyze the inflationary environment and its impact on Bitcoin’s role as a store of value.

Q: Are Bitcoin ETF inflows a bullish sign for the cryptocurrency market?

A: The inflows into Bitcoin ETFs indicate a growing interest in Bitcoin from institutional investors. It suggests that these investors are confident in Bitcoin’s long-term prospects and are willing to allocate significant funds to the asset. This influx of institutional money can have a positive effect on Bitcoin’s price, as it adds to the overall demand and liquidity of the market.

Conclusion

Bitcoin experienced a drop as investors reacted to high inflation rates in the United States. Speculation on potential rate cuts by the Federal Reserve further influenced market sentiment. However, the influx of funds into Bitcoin ETFs helped stabilize the market. As inflation concerns persist, the impact on Bitcoin’s price will continue to be closely watched.

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References: – Bitcoin has 6 months until ETF ‘liquidity crisis’ — New analysis – Blocking.net Markets Pro – TradingView – Official release from the U.S. Bureau of Labor Statistics – CME’s FedWatch tool – X social media platform – Farside Investors – BitMEX Research

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