Bitcoin (
BTC
) experienced a 2% increase in value over the past 24 hours, rebounding after struggling to surpass the $61,500 resistance level for two consecutive days. The upward movement in price, which has been sustained above $62,500, demonstrates that Bitcoin can still undergo positive price fluctuations despite the net outflows of $100 million in the U.S. spot Bitcoin exchange-traded fund (ETF) over the past four days.
Several factors have contributed to the improvement in sentiment towards cryptocurrencies. Firstly, China’s announcement of issuing $138 million in long-term bonds to stimulate the economy has had a positive impact. Although this announcement was expected since March, it reaffirmed the recognition by governments of the increased risks of recession. This response was triggered by data revealing that China’s aggregate credit declined in April for the first time in seven years.
Zou Wang, an investment director at Shanghai Anfang Private Fund Management, stated to Reuters that the market now anticipates further injections of liquidity from China’s central bank, which could potentially include interest rate cuts. These actions would exacerbate the issues arising from the recent expansive measures undertaken by the U.S. Federal Reserve (Fed), resulting in an increase in the U.S. monetary supply in March for the first time in two years.
While injecting more money into the economy may initially seem beneficial, it can lead to higher inflation over time, especially if companies and individuals delay spending and investment. As fixed-income investors realize that their returns are barely keeping up with rising inflation, scarce assets like Bitcoin become more appealing.
Ultimately, investors are likely preparing for a continuous trend where governments will have to provide liquidity to prevent economic crises. Although some argue that the stock market would be the primary beneficiary of this added liquidity, high interest rates negatively impact companies by increasing their capital costs. Any debt issued in the past 16 years will face significantly higher rates upon refinancing.
Last week, Fed officials hinted that interest rates might remain elevated for an extended period, according to Yahoo Finance. Neel Kashkari, the Chair of the Minneapolis Fed, notably stated, “I think it’s much more likely we would just sit here for longer than we expect,” while Austan Goolsbee, the Chair of the Chicago Fed, remarked, “I think now we wait.” This strategy, although seemingly contradicting the push for increased liquidity, is carefully designed to delay inflationary pressures.
In essence, the actions of the U.S. central bank aim to encourage more borrowing by companies and individuals to support employment and consumer markets. However, the Fed cannot predict how much of this borrowed money will be used to hedge against inflation through scarce assets, rather than stimulating the economy. It is still too early to fully evaluate these risks, but Bitcoin investors remain skeptical about the Fed’s ability to achieve a soft landing.
Furthermore, Bitcoin’s value was influenced on May 13 by the unexpected return of “Roaring Kitty,” a social media influencer who played a significant role in the GameStop (GME) stock rally in 2021. Despite being inactive on the X social network for nearly three years, the Bitcoin community is hopeful for some form of remarkable influence from this personality.
Cryptocurrency investors are anticipating a positive shift in sentiment towards digital assets, driven by a growing distrust in banks and traditional finance, particularly in light of recent government bailouts, such as the rescue of Philadelphia-based Republic First Bank. These investors believe that these developments may attract more participants to cryptocurrencies.
Please note that this article does not provide investment advice or recommendations. Every investment and trading decision involves risk, and readers should conduct their own research before making a decision.