The price of Bitcoin, which is highly volatile, is inherently fluctuating. But last week was one of the most unusual times in recent memory.
First of all, the mood at the beginning of the week started on a downward note. This is because there was a large outflow of investment funds from the Bitcoin spot ETF market late in the day in the aftermath of the U.S. Department of Labor's employment report that came out on the 7th. A significant net outflow of more than $200 million occurred in just 17 business days and about a month in terms of time.
Bitcoin price, which fell to the $66,000 level, recovered to the $70,000 level on the 12th. This is because the Consumer Price Index (CPI) for May, which was announced on this day, fell below market expectations . As the inflation rate slows, expectations that the U.S. Federal Reserve (Fed) may speed up interest rate cuts are also on the rise.
What settled the chaotic market was the U.S. Federal Reserve's announcement of the base interest rate for June. At the Open Market Committee (FOMC) held early in the morning on the 13th, the Federal Reserve froze the base interest rate at 5.25-5.50% per annum. The possibility of an interest rate cut, which the market was very interested in, has been reduced to one within this year and four in 2025. As the FOMC's forecast of 'three interest rate cuts within the year' in March was greatly reduced, the price of Bitcoin also fell to $67,500 .
The most important indicator was the announcement of the US Producer Price Index (PPI) for May on the 13th. On this day, the price index fell strongly short of market expectations. It was an indicator that signaled a reversal in the trend strong enough to immediately cut down the previously high inflation rate. The price of Bitcoin jumped for a moment, but it did not last. Rather, compared to other risky asset groups on this day, the price of Bitcoin fell by about 2%.
May PPI… ‘Interest rate cut good news = Bitcoin good news’ formula broken
Bitcoin had a clear price formula this year. The formula is that if there is good news about an interest rate cut from the United States, it is good for the price of Bitcoin, and if there is negative news about an interest rate cut, it is negative for Bitcoin. There have been no exceptions over the past six months. In that respect, this PPI is quite noteworthy.
Some explain this by saying that Bitcoin and cryptocurrency have lost their relative attractiveness. In the asset market, there is a tendency for more money to flow into assets whose prices are rising quickly. Unlike stocks and bonds, which have continued to rise this year, Bitcoin has shown a 'weak performance', with its price falling by nearly 5% in the second quarter. It will. Bloomberg, an American business magazine, reported on the 14th that doubts about the possibility of a cryptocurrency rebound are growing through an article with this content .
JP Morgan, an investment bank with the most conservative outlook on Bitcoin among institutional researchers, analyzed on the 12th that the inflow of funds into Bitcoin spot ETFs may decrease . JP Morgan considers the median production cost of Bitcoin to be $45,000 per unit, because the current price is significantly higher than this.
Whatever the reason, if the inflow of funds into Bitcoin spot ETFs slows down compared to now, it could act as a clear factor in the price decline. It seems necessary to check whether the engine called ETF, which has been driving the rise of Bitcoin, is working well.
Will the Bank of England join the ranks of ‘G7 interest rate cuts’?
The past six months have been relatively easy to gauge the price of Bitcoin. This is because prices followed expectations of a U.S. interest rate cut, and expectations of a U.S. interest rate cut are partly shaped by macroeconomic indicators. However, exceptions may occur in the future.
The economic indicator to pay attention to this week is the UK interest rate decision on Thursday the 20th. At 8pm this evening, the Bank of England will announce the base interest rate for June. Two weeks ago, the Bank of Canada (BoC) and the European Central Bank (ECB) lowered their benchmark interest rates by 0.25%p each.
Given that the UK is one of the seven major countries (G7), attention is being paid to whether the Bank of England will also join this procession. The fact that countries around the world are lowering interest rates and implementing easing monetary policies is positive news that relatively increases the value of Bitcoin.
It seems necessary to carefully watch how the Bitcoin price reacts after the number of new unemployment claims in the United States announced today. So far, higher-than-expected unemployment claims have been one of the factors putting upward pressure on the price of Bitcoin. Well, I hope our readers have successful investments this week as well.
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