Bitcoin (
BTC
) experienced a 2% increase in value over the past 24 hours, bouncing back after struggling to surpass the $61,500 resistance level for two days. The current upward movement, which has seen Bitcoin maintain prices above $62,500, demonstrates that the cryptocurrency can still undergo positive price fluctuations despite net outflows of $100 million from the U.S. spot Bitcoin exchange-traded fund (ETF) over the course of four days.
The daily flows of the U.S. spot Bitcoin ETF, measured in USD million, can be seen in the chart provided by Farside Investors.
Several factors have contributed to the improved sentiment surrounding cryptocurrencies. One of these factors is China’s announcement of issuing $138 million in long-term bonds to stimulate the economy. Although this announcement was expected since March, it serves as a confirmation that governments are recognizing the increased risks of recession. This response was prompted by data indicating that China’s aggregate credit decreased in April, marking the first decline in seven years.
Zou Wang, an investment director at Shanghai Anfang Private Fund Management, stated to Reuters that the market is now anticipating further liquidity injections from China’s central bank, which could include interest rate cuts. These actions would exacerbate the issues caused by recent expansive measures taken by the U.S. Federal Reserve (Fed), which led to the first increase in the U.S. monetary supply in March in two years.
The chart provided by Fed Saint Louis illustrates the U.S. M1 monetary base measured in USD.
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, assets like Bitcoin, which are scarce, may become more appealing.
Ultimately, investors are likely preparing for a continuous trend where governments will need to provide liquidity to prevent economic crises. While some argue that the stock market would primarily benefit from this increased liquidity, high interest rates negatively impact companies by raising their capital costs. Any debt issued in the past 16 years will face significantly higher rates when refinancing.
According to Yahoo Finance, last week, Fed officials hinted that interest rates may remain elevated for an extended period. Minneapolis Fed Chair Neel Kashkari stated, “I think it’s much more likely we would just sit here for longer than we expect,” while Chicago Fed Chair Austan Goolsbee remarked, “I think now we wait.” This strategy, although seemingly contradictory to the push for increased liquidity, is designed to delay inflationary pressures.
In essence, the actions taken by the U.S. central bank are aimed at encouraging companies and individuals to borrow more to support employment and consumer markets. However, the Fed cannot predict how much of this borrowed money will be spent on scarce assets as a hedge against inflation, rather than stimulating the economy. It is still too early to fully assess these risks, but Bitcoin investors remain skeptical about the Fed’s ability to achieve a soft landing.
Related:
A Japanese listed firm has added 117 BTC to its reserve assets
In a surprising turn of events on May 13, Bitcoin’s value was influenced by the return of social media influencer “Roaring Kitty,” who played a significant role in the GameStop (GME) stock rally in 2021. After being inactive on the X social network for nearly three years, the Bitcoin community is hopeful for some form of remarkable influence from this individual.
Cryptocurrency investors are anticipating a 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 Republic First Bank based in Philadelphia. These investors believe that these developments may attract more participants to cryptocurrencies.
It is important to note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making any decisions.