Key facts
- Bitcoin's rally has cooled as investors digest U.S. inflation data.
- The market is no longer assuming every favorable inflation print will automatically lead to rate cuts or new all-time highs.
- Elevated oil prices above $85 a barrel keep inflation risks high.
- Upcoming U.S. producer price inflation data and PCE data will be key indicators.
- Geopolitical developments impacting oil and gas flows are also a significant factor.
Bitcoin's recent rally has lost momentum as investors digest a weaker-than-forecast U.S. inflation figure, which was not substantial enough to prompt an immediate Federal Reserve interest-rate cut. While Bitcoin saw a 3% increase over 24 hours, it has since pulled back by 0.5% from its midnight level. Ether has experienced a similar pullback.
Market sentiment, as reflected on Polymarket, shows a significant drop in the perceived odds of a rate increase, with current expectations heavily favoring the Federal Reserve leaving rates unchanged this month. CME's FedWatch data further indicates a low probability of an increase in 30-day fed funds futures prices.
According to Markus Levin, co-founder of XYO, the crypto market is becoming more discerning in how it interprets macroeconomic signals. He noted that while falling inflation generally benefits risk assets, traders are no longer assuming that every positive inflation report will automatically translate into rate cuts or new all-time highs for cryptocurrencies.
Former Fed Chair Kevin Warsh has cautioned that a single favorable inflation report is insufficient to declare victory, emphasizing that the central bank's future actions will depend on incoming data. The European Central Bank is also unlikely to implement a rate cut in July, especially as Brent crude oil prices exceeding $85 a barrel continue to pose elevated inflation risks.
Looking ahead, the focus is shifting towards whether inflation can sustain its cooling trend without showing signs of a rebound. Consequently, Bitcoin's future price movements may be less dependent on the July rate decision and more on the ongoing battle between cooling inflation and rising oil prices. Geopolitical developments, particularly those impacting oil and gas flows, are also expected to play a crucial role.