Bitcoin approaches $65,000 as Fed rate hike expectations sharply weaken
Bitcoin climbed to nearly $64,800 on Wednesday, its best performance in weeks, after U.S. inflation cooled more than economists expected and traders abandoned bets that the Federal Reserve would raise interest rates this month. The inflation rate fell to 3.5% in June from 4.2%, and the core inflation rate excluding food and energy fell from 2.9% to 2.6%. The cooling in core indicators suggests there is more to easing inflation than just falling energy prices, and removes the strongest case for further interest rate hikes. After the announcement, the implied probability of a rate hike plummeted from 43% to 13%, and the two-year Treasury yield fell six basis points. Bitcoin rose 3.6% in 24 hours and has risen 3.3% this week, with a turnover of approximately $31 billion. Ethereum performed well, approaching $1,880, rising 5.3% on the day and rising 7.1% in seven days. Raising interest rates has a negative impact on Bitcoin and risk assets because when the Fed raises interest rates, cash and Treasuries begin to offer substantial and guaranteed returns, thus reducing investors' incentive to hold assets that offer no yield and can fluctuate as much as 5% in a single day. On the other hand, cooling inflation means the Fed has fewer reasons to raise interest rates, so the motivation to raise interest rates weakens and capital flows reverse. “Bitcoin remains an interest rate-sensitive risk asset rather than a macro hedging tool,” said Jeff Ko, chief analyst at CoinEx. He believes that this data performance has alleviated “short-term downward pressure, but failed to build a lasting breakthrough trend.” Core inflation is 2.6%, still above the Fed's 2% target, so the data provides the central bank with room to maintain policy rather than a reason to cut interest rates. Ko pointed out that the September Federal Open Market Committee (FOMC) meeting will be the next real macro test. In addition, we need to pay attention to the trend of the US dollar and whether Bitcoin ETF fund flows can be sustained.