Bitcoin bulls have been spared from having to pay attention to the economy, Federal Reserve monetary policy and other issues this year thanks to the huge demand for cryptocurrencies from new spot ETFs. At least for now, that situation seems to be changing.
The Producer Price Index (PPI) for February, released Thursday morning, was evidence that inflation is much stronger than many expected. The producer price index #rose 0.6% last month, double the January figure and double what economists had forecast, according to government data. The so-called #core producer price index, which excludes food and energy costs, rose 0.3%, down from January's 0.5% but above the 0.2% forecast.
The Consumer Price Index (CPI) released earlier this week also beat expectations, with inflation rising to an annualized rate of 3.2% and the core index rising to 3.8%.
The 10-year bond yield, which had dipped below 4% earlier this month, rose to 4.30%. At the same time, the U. S. dollar has broken out of a downtrend that began in mid-February and has gained about 1% over the past week, including a 0.5% gain on Thursday. All things being equal, rising interest rates and a stronger U. S. dollar tend to have a negative impact on risk assets such as #bitcoin (BTC).
Expectations that monetary policy will ease significantly in 2024 continue to weaken. At the beginning of the year, the market expected the Fed to cut rates by 150 basis points in 2024, with the first rate cut due at next week's Federal Open Market Committee (FOMC) meeting. No one currently expects that, nor does anyone expect a rate cut at the May meeting; the CME Fedwatch tool shows that the probability of a June rate cut has fallen to around 50 percent.
After rising 70 percent through 2024 and hitting an all-time high of just under $74,000, bitcoin is certainly susceptible to a correction, and perhaps the news on inflation, interest rates and the dollar is giving traders a reason to relax. Bitcoin hit $73,800 on Thursday morning before falling to $70,650 following the release of economic data.
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