The Bitcoin (BTC) price is little moved in the mid-$29,000s in wake of the latest core US inflation data that has reaffirmed that price pressures continue to ease in the US economy.
The Core Consumer Price Index (CPI) rose 0.2% MoM in July, in line with expected and unchanged from June, while the YoY metric rose 4.7%, a tad lower than the expected 4.8% and down slightly from June.
The data reaffirmed bets that the US Federal Reserve is done with interest hikes – as per the CME’s Fed Watch Tool, US money market futures last implied a small 9.5% chance that the Fed hikes interest rates by 25 bps again to 5.5-5.75% in September, down from around 14% prior to the data.
After a surprisingly powerful and durable surge in US inflation that began in mid-2021, the Fed embarked on a historic interest rate hiking cycle in early 2022, and has since raised interest rates by 525 bps in the last 17 months.
The Fed’s most recent hike came in July, when interest rates reached a 22-year peak at 5.25-5.50%.
Fed Rate Cuts Coming Soon?
But Core CPI data is sending positive signals that underlying price pressures in the US continue to head in the right direction, reducing the pressure on the Fed to hike interest rates anymore.
If core price pressures remain at around 0.2% MoM for a full year, that implies a yearly inflation rate of only just above the Fed’s 2.0% target.
As per US money market futures pricing cited by the CME’s Fed Watch Tool, the market’s base case appears to be for the Fed to start cutting interest rates by the end of Q1 2024.
The fact that the Fed’s interest rate hiking cycle has likely ended and rate cuts are on the horizon is arguably a strong macro tailwind for Bitcoin.
As a reminder, the Fed cutting and holding interest rates at close to zero in 2020 and 2021 in response to the pandemic was a key driver of the 2020/2021 bull market.
Moreover, the Fed’s aggressive pivot to rate hikes in 2022 was a key driver of last year’s ugly Bitcoin price drop.
Bitcoin tends to prefer a lower interest rate environment because when yield for holding safe assets like US government bonds is lower, investors tend to move into riskier assets (as Bitcoin is still viewed) as they hunt for returns.
Bitcoin (BTC) Price Predictions Remain Upbeat
Short and medium-term price predictions for Bitcoin remain upbeat, thanks to an improving fundamental outlook and the cryptocurrency’s still very strong technical setup.
As already noted, macro remains a modest tailwind for Bitcoin now that the Fed’s rate hiking cycle appears to be over, and that interest rate cuts are on the horizon.
That tailwind will strengthen the closer we get to actual rate cuts.
Crypto-specific fundamentals are also playing in Bitcoin’s favor right now, with the main theme being hype surrounding recent spot Bitcoin ETF applications from major Wall Street heavyweights like BlackRock.
Galaxy Digital CEO and crypto billionaire Mike Novogratz said in an earnings call earlier this week that, as per his sources, a spot Bitcoin ETF application approval is a “matter of when, not if”, and could come in “four to six months”.
Another major industry player Cathy Wood, Ark Invest’s CEO, said she expects multiple spot Bitcoin ETF applications to all come through at the same time.
Meanwhile, crypto research house Matrixport was out with a note on Thursday saying that a wave of spot Bitcoin ETF approvals could be the trigger the next BTC price rally.
These ETF providers would spend “considerable marketing expenses to draw in retail and institutional capital”, Matrixport said.
The research house recently forecast BTC to hit $125,000 by the end of 2024.
The potential approval of spot Bitcoin ETFs is creating so much hype right now because they would presumably open the door to a flood of new demand from retail and institutional investors who have so far stayed out of the crypto market.
Bitcoin Strong Technical Set-up – Can BTC Blast Past $30,000?
Chart analysis gives plenty more reasons to be optimistic on the near-term outlook for the Bitcoin price.
BTC recently saw a solid bounce from long-term support in the form of the 2023 uptrend.
If the price action so far this year is anything to go by, Bitcoin could soon blast past $30,000 to retest yearly highs in the $31,800s.
That being said, Bitcoin’s failure to get back above the psychologically important $30,000 level (and its 50DMA) is a little concerning.
In the absence of immediate bullish catalysts, it may be tough for Bitcoin to remain above the 2023 uptrend for the remainder of the year.
After all, while spot Bitcoin ETF approvals and Fed rate cuts are coming, neither are likely to arrive until early 2024 at the earliest.
Short-term dips back towards the mid-$20,000s are possible, but should be viewed as dip buying opportunities.
Other Themes to Watch
Other themes to watch include the SEC’s ongoing regulation by enforcement drive against the broader US crypto industry.
On the one hand this is bad for Bitcoin, as it hinders crypto’s general adoption in the US, but on the other hand it could be viewed as positive, as the SEC has explicitly stated it doesn’t view Bitcoin as a security, so as the SEC ups its attacks, crypto investors could increasingly turn to Bitcoin as a safe haven.
Elsewhere, its worth watching whether the US Congress can get its act together on crypto legislation, with stablecoin legislation expected to soon face a vote in the House.
PayPal’s recent move to create a Ethereum-based stablecoin should up the urgency on policymakers to come to some sort of bipartisan deal.
Of course, crypto is bigger than the US, and its worth monitoring global adoption, which appears to be generally trending in a positive direction, with key markets in Europe (like the UK and EU) recently implementing (mostly) pro-crypto legislation, and China trailing making crypto legal again in Hong Kong.