Bitcoin (BTC) is experiencing a resurgence, fueled by growing expectations of central bank rate cuts. The leading cryptocurrency jumped over 7.5% on Wednesday, its biggest single-day gain since March, following the release of weaker-than-expected U.S. inflation data.
This positive shift in sentiment reflects the close link between risk assets like Bitcoin and monetary policy. When central banks loosen their grip on interest rates, it generally translates to more liquidity in the financial system. This, in turn, can lead investors to increase their exposure to riskier assets, including cryptocurrencies.
US Data Triggers Rate Cut Bets
Recent economic data from the U.S. painted a picture of a slowing economy. April’s Consumer Price Index (CPI) came in lower than expected, indicating a potential cool-down in inflation. Retail sales growth also stalled, further strengthening the case for a policy change by the Federal Reserve.
As a result, financial markets are now anticipating the Fed’s first rate cut this year to occur in September. This aligns with the upcoming summer season (June 20th – September 22nd) when the Fed has already signaled plans to slow down its quantitative tightening program, another tool used to cool inflation.
Also Read: Wall Street Cheers Soft Inflation Numbers: Stocks Up, Dollar Down as Fed Weighs Rate Cuts
Global Central Banks Shift Gears
The U.S. isn’t alone in its potential pivot. The Bank of England (BOE), the European Central Bank (ECB), and even the traditionally hawkish Swiss National Bank (SNB) and Sweden’s Riksbank have all hinted at or enacted rate cuts.
This worldwide shift towards monetary easing is evident in data from MacroMicro, which tracks central bank actions. Their chart shows a clear decline in the number of central banks raising rates, accompanied by a rise in those opting for cuts.
Positive Outlook for Cryptocurrencies
According to brokerage firm Pepperstone, the prospect of increased liquidity throughout the summer months is likely to benefit equities and encourage investors to “remain further out on the risk curve,” potentially including cryptocurrencies.
Bitcoin’s recent surge is a testament to this dynamic. As central banks loosen their grip on interest rates, risk assets like Bitcoin may find favor with investors seeking higher returns. However, it’s important to remember that the cryptocurrency market remains volatile, and future economic developments could impact Bitcoin’s price trajectory.
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