Bitcoin Falls as Market Shifts Focus to Potential Interest Rate Hikes
Last week, Bitcoin experienced a decline in price as market participants became less optimistic due to the possibility of higher interest rates in the US. The cryptocurrency had been on an upward trend since news broke that BlackRock, the world’s largest asset manager, had filed to list a Bitcoin exchange-traded fund (ETF) in the US. Despite remaining relatively stagnant between $30,000 and $31,000 in the past two weeks, Bitcoin has still seen an 18% increase since the filing was announced on June 16.
Main Points:
- Bitcoin’s price fell as focus shifted back to macroeconomic news and the potential for more rate hikes in the US.
- Chair Jerome Powell of the Federal Reserve recently put further rate hikes on pause, but new data showing higher than expected hourly earnings in the US has increased the likelihood of more rate hikes.
- The market is now fully pricing in a 25-basis point rate hike for the Fed’s meeting in July, with a 40% chance of another hike by year-end.
- Rising interest rates have had a negative impact on Bitcoin and other risk assets, as it makes capital more expensive and lessens the incentive for speculators to take on higher-risk investments.
- However, Bitcoin’s dominant investor profile as long-term holders may make it more resilient to macro factors compared to other risk assets.
Hot Take:
Bitcoin’s recent decline in price is largely attributed to concerns about potential interest rate hikes in the US. While rising rates generally have a negative impact on risk assets, Bitcoin’s long-term investor profile may provide some resilience. Nevertheless, the market is currently pricing in a rate hike for July, and further hikes may follow later in the year. Investors should closely monitor the Federal Reserve’s next rate announcement on July 26 for potential implications on Bitcoin and other cryptocurrencies.