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 experienced a flurry of activity on Wednesday following the latest policy announcement from the US Federal Reserve (Fed). Initially approaching $70,000, Bitcoin (BTC) soon dipped to $66,983 on Bitstamp, marking a 1.3% decrease for the day. This decline occurred despite some optimism surrounding the Consumer Price Index (CPI), which fell short of expectations.
As anticipated, the Federal Open Market Committee (FOMC) maintained the federal funds rate target at 5%, 25%-50%. Contrary to earlier projections of potential cuts totaling 75 basis points, the updated growth and inflation forecasts now suggest only a single 25-basis-point reduction. Furthermore, the committee noted minimal progress towards achieving the 2% inflation target, a departure from previous statements.
Fed Chairman Jerome Powell emphasized the central bank's objective to curb inflation to more manageable levels. His affirmation that there were no plans for further interest rate cuts rattled risk assets, with Powell suggesting that maintaining current policy at a restrictive level could lead to greater economic strain over time.
Earlier data revealed a surprising deceleration in inflation according to the US Consumer Price Index for May, initially sparking optimism across crypto, stock, and bond markets as traders anticipated potential Fed rate adjustments. However, Powell's cautious remarks tempered these gains, resulting in Bitcoin settling at $67,300 by day's end, later recovering to $68,000.
Spot Bitcoin exchange-traded funds (ETFs) witnessed consecutive days of outflows as investors reduced exposure ahead of the FOMC meeting. Tuesday saw the largest daily withdrawal since May 1, amounting to $200 million across eleven ETFs. This coincided with a brief downturn in BTC prices, dipping to $66,200 before bouncing back.
Hedge fund QCP attributed this pullback to investors "de-risking" from crypto assets ahead of the May CPI report and Fed meeting. K33 Research highlighted Bitcoin's heightened sensitivity to economic data and its growing correlation with US equities, underscoring the significant impact of both the May CPI data and the Fed's interest rate decision on the market.