The recent release of the consumer-price index (CPI) data, which indicated a decline in inflation in the United States, has sparked renewed interest and optimism in the cryptocurrency market, particularly for bitcoin. Matt Hougan, chief investment officer at Bitwise, emphasized that this development could potentially serve as a significant catalyst for bitcoin’s recovery from its recent lackluster performance.
According to the U.S. Bureau of Labor Statistics, the CPI fell by 0.1% last month, marking its first decline since May 2020. This unexpected drop is seen as a pivotal factor that increases the likelihood of the Federal Reserve implementing interest rate cuts. Such monetary policy adjustments are aimed at bolstering economic recovery amid easing inflation pressures. Hougan highlighted that with expectations of a more accommodative monetary stance ahead, he anticipates bitcoin to challenge its previous all-time high of $73,798, achieved back in March, in the near future.
The market reaction has been notable, with Fed-funds futures traders now pricing in an 84.6% probability of a rate cut occurring in September, up from 69.7% just a day earlier, as indicated by the CME FedWatch Tool. While this optimism has spurred a rally in equity markets, analysts at QCP Capital observed that similar positive sentiment has yet to fully permeate the crypto market, suggesting potential upside for bitcoin if market sentiment aligns more closely with broader economic indicators.
On Thursday, bitcoin’s price edged up by 0.8% to approximately $57,880, according to Dow Jones Market Data. Despite experiencing a decline of 13.1% over the past month, bitcoin has still posted a robust gain of 38% year-to-date. Nevertheless, it remains approximately 21.6% below its peak price reached in March. Hougan suggested that recent weaknesses in bitcoin’s price could partly be attributed to concerns surrounding the liquidation of assets by entities like Mt. Gox and ongoing sales of seized bitcoins by governments. However, he expressed optimism that the CPI data could alleviate some of these short-term pressures on the cryptocurrency market.
Interestingly, this perspective diverges from earlier narratives that positioned bitcoin primarily as a hedge against inflation. Will McDonough, chairman and founder of Corestone Capital, noted that bitcoin’s price dynamics in 2024 have shown less correlation with macroeconomic factors and more with supply-and-demand dynamics. These dynamics are increasingly influenced by new market participants gaining access to bitcoin through ETFs and ongoing sales from entities like Mt. Gox creditors and government agencies.
Overall, while bitcoin continues to navigate various market forces and regulatory developments, the latest CPI data has injected renewed optimism among investors and analysts alike. It suggests a potential upside for the cryptocurrency as monetary policy shifts to support economic stability and growth in the United States. As market participants monitor these developments closely, bitcoin’s resilience and potential for recovery could further solidify its position as a key asset in the evolving landscape of global finance.