The bitcoin price, still down almost 70% from its all-time high as lawmakers mull bitcoin’s future, is still reeling from various crypto industry collapses that have triggered serious warnings some other major cryptocurrencies could fail.
Now, the bitcoin and crypto market is closely watching for the next U.S. consumer price index (CPI) print, due Wednesday, which could mean the Federal Reserve scales back its planned interest rate hike at its September meeting.
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“A decline in inflation could mean that the Fed may cut back on their rate hike from the September meeting,” Yuya Hasegawa, bitcoin and crypto market analyst at Bitbank, wrote in emailed comments.
This week, the latest U.S. jobs report showed employment rose by more than twice expectations, somewhat dampening the possibility of a Fed u-turn after the U.S. recorded two consecutive periods of economic contraction—one technical indicator of a recession.
“Of course, the market is not yet completely convinced of it until they see the July CPI, which is slated to be announced next Wednesday, but inflation will likely decline in July due to lower oil prices, and bitcoin will likely benefit from the expectation for a slower rate hike.”
The Fed has been battling soaring inflation this year, embarking on a series of historic interest rate hikes and scaling back its massive pandemic-era stimulus measures that have weighed heavily on bitcoin, crypto and stock markets.
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“If the Fed does indeed blink, and backs off increasing rates at its projected pace, the market would likely take it as a positive catalyst,” Cumberland, a Chicago-based market-maker, wrote in a report that surveyed investors who predicted the bitcoin price will rebound to $32,000 this year—potentially adding $180 billion to the bitcoin market capitalization.
“It’s fascinating that even following a severe selloff, at a moment when the market motto had been risk-off everything, the average respondent was still extremely bullish.”
Cumberland analysts see a strong possibility the Fed will dial back its hawkish program in coming months.
“In our view, this isn’t that outlandish; the shape of the forward curve is already predicting a chance at rate cuts in 2023.”