Bitcoin Dips Below $ 32,000 As Bets On Fed Rate Hike Rise; Gold remains resilient
Bitcoin extended Tuesday’s decline even as gold, a traditional inflation hedge, remained resilient in the face of increased bets on a faster monetary policy tightening by the Federal Reserve (Fed).
The major cryptocurrency was trading near $ 32,300 at the time of publication, down 1.4% on the day. Prices hit a 2.5-week low of $ 31,669 early in the day, after encountering bids above $ 33,000 on Tuesday, according to data from CoinDesk 20.
The drop to its lowest since June 26 comes a day after futures contracts linked to the federal funds rate and Eurodollars, which track short-term interest rate expectations, bet on Tuesday that the Fed would raise rates interest between December 2022 and the first quarter of 2023. According to Reuters, the price revision came after the U.S. Department of Labor said the consumer price index rose 5.4% year-on-year in June, the fastest pace since 2008.
Rate hikes, or possible degression reported by Federal Reserve Bank of St. Louis President James Bullard, enhance the attractiveness of holding fiat currencies, in this case the dollar, and dilutes the attractiveness of perceived store of value assets such as bitcoins and gold.
However, as bitcoin eases losses, gold is currently trading 0.35% higher at $ 1,814 an ounce. The spread has prompted Amber Group, a crypto service provider, to urge caution by reading too much into the rate hike narrative just yet.
“Bitcoin’s weakness this morning could be associated with fears of a Fed rate hike,” Amber Group said. “However, it’s hard to force this rate hike narrative like a headwind if other risky assets (stocks) hit new highs and gold remains long.”
Trader and analyst Alex Kruger said the cryptocurrency has been looking heavy for a long time, thanks to weak flows, and “the CPI may have helped.”
That said, some analysts say concerns about the tightening or gradual unwinding of stimulus measures may not pose a threat to traditional markets, but present an immediate downside risk to bitcoin.
“Is tapering a real concern? Not for large markets, but it is arguably a risk for bitcoin, considered by fiat-based institutional investors at the extreme end of the risk spectrum, ”Messari’s Mira Christanto said in a dated blog post. May 27. “The capital of this new asset class is still mercenary and tends to overreact on the bullish and bearish side. “
The mid-May sell-off from $ 58,000 to $ 30,000 came after a spike in US inflation reported in April, which heightened concerns that the Fed might consider an early rate hike or a reduced purchases of liquidity-boosting assets, called quantitative easing.
Stack Funds COO Matthew Dibb said: “The recent increase in bets on the Fed’s rate hike may not bode well for BTC in the near term as the recent correlation is more related to stocks, liquidity and retail sentiment, rather than BTC being a ‘hedge’ against inflation.
Dibb said the cryptocurrency has looked weak on technical charts over the past few weeks and the latest US CPI release may add to the selling pressure.
However, while bitcoin has come under pressure this week, it is still stuck in a wide two-month range of $ 30,000 to $ 40,000. “It’s hard to read too much into the price action right now when we’re still stuck in that range,” Amber Group said.
Investors may be better off waiting for clear directional signals to emerge.
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