Author: Marcel Pechman, CoinTelegraph; Translated by: Wuzhu, Jinse Finance
Bitcoin has gained 2% in the past 24 hours, recovering after struggling to break through the $61,500 resistance level for two consecutive days. Maintaining price levels above $62,500, the current upward move shows that Bitcoin can still experience positive price action regardless of U.S. spot Bitcoin exchange-traded fund (ETF) flows, with a net outflow of $100 million in four days.
US spot Bitcoin ETF daily flows, USD million. Source: Farside Investors
Several factors have improved sentiment towards cryptocurrencies, starting with China’s announcement of a $138 million long-term bond issuance to boost the economy. While this was expected since the announcement in March, it reaffirms that governments acknowledge the increased risk of a recession. This was in response to data showing that total credit in China fell for the first time in seven years in April.
The market now expects the Chinese central bank to inject further liquidity, possibly including a rate cut, said the chief investment officer of Shanghai Anfang Private Equity Fund Management Co., Ltd. Such actions would exacerbate the problems caused by the recent massive measures taken by the U.S. Federal Reserve, which led to the first increase in the U.S. money supply in two years in March.
US M1 base money, USD. Source: Fed Saint Louis
At first glance, pumping more money into the economy may seem beneficial, but over time it could lead to higher inflation, especially when companies and individuals may delay spending and investing. As fixed-income investors begin to realize that their returns are barely keeping pace with rising inflation, scarce assets like Bitcoin could become more attractive.
Ultimately, investors may be preparing for a continued trend whereby governments will need to continue to provide liquidity to prevent economic crises. While some may argue that the stock market will primarily benefit from increased liquidity, higher interest rates will adversely affect businesses by raising their cost of capital. Any debt issued in the past 16 years will face significantly higher interest rates when refinanced.
According to Yahoo Finance, last week, Fed officials hinted that interest rates could remain high for a longer period of time. Minneapolis Fed President Neel Kashkari specifically pointed out, "I think we may be sitting here for a lot longer than we expected," Chicago Fed President Austan Goolsbee said, "I think now we will wait on this strategy, even though it seems to contradict our expectations." The purpose of promoting increased liquidity is to delay inflationary pressures.
Essentially, the U.S. central bank's actions are designed to encourage businesses and individuals to increase borrowing in order to support employment and consumer markets. However, what the Fed cannot foresee is how much of these borrowed funds will be used to purchase scarce assets to hedge against inflation rather than stimulate the economy. It seems too early to fully assess such risks, but Bitcoin investors are skeptical about the Fed's chances of achieving a soft landing.
Additionally, Bitcoin’s value was impacted on May 13 by an unexpected factor: the return of social media influencer “Roaring Kitty,” a former marketer who played a key role in the 2021 GameStop (GME) rally. For nearly three years, the Bitcoin community seemed to be hoping that this figure would have some form of notable impact.
Cryptocurrency investors expect a positive shift in sentiment toward digital assets amid growing distrust of banks and traditional finance, especially in light of recent government bailouts, including for Philadelphia-based Republic First Bank. These investors believe these developments could drive more participants toward cryptocurrencies.
