Bitcoin’s price dipped post-Fed decision despite low CPI, indicating market sensitivity to the Fed’s tightening stance.
Spot Bitcoin ETFs saw significant outflows before and after the Fed’s meeting, signaling investor caution.
Powell’s remarks on inflation and interest rates spurred risk-off sentiment, affecting Bitcoin’s late-day recovery.
Bitcoin price movement went on activity on Wednesday after the latest policy decision of the US Federal Reserve(Fed). Bitcoin (BTC) managed to get close to $ 70,000 but it started to decline shortly, getting to $66 983 on Bitstamp, which is around 1. 3% on the day. This fall was however seen despite some rise in expectation from the Consumer Price Index (CPI) at below par than was expected.
The Federal Open Market Committee (FOMC) kept its target for the federal funds rate at 5%, 25%-5 and 50% as anticipated. Despite the FOMC’s prior expectation of a couple of cuts by 75 basis points this year, its new growth and inflation forecast suggest only one cut by 25 basis points. What has also changed is that the committee also reported that there was little or no progress towards a 2% inflation target, unlike the previous statements that pointed to a lack of progress.
Fed CEO Jerome Powell said the central bank aims to reduce inflation to a more manageable level. As expected, he reinforced that there was no consideration of further interest rate cuts, which spooked the risk assets. ‘We believe the policy is currently too stringent,’ and by and large, he added, ‘if you keep policy at that restrictive level sufficiently far into the future, you will see more acute deterioration in the real economy indeed.’
Earlier in the day, the U.S. Consumer Price Index for May showed a surprising deceleration in inflation. This initially boosted crypto, stock, and bond markets as traders anticipated the start of Fed rate reductions. However, Powell’s cautious tone tempered these rallies, leading to a late-day Bitcoin price of $67,300, which later recovered to $68,000.
Spot Bitcoin exchange-traded funds (ETFs) saw two consecutive days of outflows early in the week, with traders reducing risk ahead of the FOMC meeting. Eleven ETFs registered net outflows of $200 million on Tuesday, the largest daily withdrawal since May 1. The outflows coincided with a downturn in BTC prices, briefly dipping to $66,200 before rebounding.
Hedge fund QCP attributed the pullback to investors “de-risking” from crypto assets ahead of the May CPI report and Fed meeting. K33 Research noted Bitcoin’s high responsiveness to economic data and its increasing correlation with U.S. equities. They highlighted that both the May CPI data and the Fed’s interest rate decision were poised to significantly impact the market.
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