Bitcoin (BTC) noted a significant price increase, nearly reaching the $70,000 mark as recent inflation data from May surpassed expectations, which in turn fueled hopes of a rate cut from the U.S. Federal Reserve. The U.S. Consumer Price Index (CPI) data displayed no monthly change and revealed an annual increase of 3.3%, a slower rate compared to the previous twelve months.
The Federal Reserve is set to announce its decision regarding rates, and although a rate cut is not expected, the recent inflation data provides some flexibility for future rate movement. Bitcoin prices reacted positively to the inflation report by reversing their recent downtrend, getting close to the $70,000 mark. Bitcoin was trading at $69,359.30 at 12:30 pm ET.
With inflation rates decreasing, the Federal Reserve has significant reasons to ponder a rate cut. The ongoing Fed's campaign against inflation has resulted in the highest rates in 23 years.
Bitcoin's price activity responded positively to lower inflation numbers, despite Bitcoin's reputation as a safe-haven asset, it behaves more like a risk asset. Bond yields have risen due to high rates, which makes bonds a more appealing investment. If the Fed decides on a rate cut, it is likely that bond yields will decrease, encouraging investors to favor riskier assets like cryptocurrencies for potentially higher returns.
Bitcoin investors voiced their concerns prior to the release of Wednesday's inflation data and the subsequent Federal Reserve meeting. This caution translated into a downward shift for Bitcoin and a decrease in Bitcoin ETFs as investors withdrew funds. As per Farside Investors, Bitcoin ETFs reported roughly $265 million withdrawals within the first two days of the week.
This marks a change in trend, as Bitcoin ETFs had experienced net inflows for the preceding 20 days, primarily due to an arbitrage opportunity discovered by traders between the ETFs and the futures market. On the eve of the Fed's rate decision, the CME FedWatch Tool projected a 99.9% chance that rates will remain the same.