Bitcoin prices jumped over 7% on Wednesday, propelled by a report showing U.S. inflation cooled slightly in April from the previous month. The cryptocurrency's rally coincided with gains in the stock market as investors interpreted the data as increasing the likelihood of future interest rate cuts by the Federal Reserve.
The price of bitcoin spiked to $66,124.59 by the day's end, marking its best single-day performance since March 25th. The digital asset also traded above its 50-day moving average for the first time in over a month.
The slightly lower than expected inflation number modestly raised the chances of an upcoming rate cut, which remains a strong driver for bitcoin's price movement. After the launches of bitcoin ETFs and the halving event, the next major potential catalyst is likely to be an interest rate cut by the Fed. Bitcoin will probably remain range-bound, tracking macro data points until a clearer path towards lower rates emerges.
The Consumer Price Index, which measures the cost of goods and services, rose 0.3% in April from March, coming in below the estimated 0.4% increase. While still up 3.4% year-over-year, the slower monthly inflation print sparked hopes that the Fed could start dialing back its aggressive rate hike campaign.
With U.S. core inflation cooling for the first time in six months, investors could regain their appetite for risk-on assets like crypto, driving more inflows into bitcoin spot ETFs which have been quiet lately. However, with rate cuts still uncertain, the recovery in bitcoin's price could be gradual.
While higher rates make riskier investments like tech stocks and bitcoin less appealing compared to safe-haven Treasuries, bitcoin occupies a unique position straddling risk-on and risk-off characteristics. Many long-term bitcoin investors are unfazed by Fed policy impacting short-term volatility.
Macro factors have been exerting a strong influence on bitcoin lately, with recent industry developments like ETF launches and the halving now in the rear-view mirror. Earlier this week, bitcoin remained subdued as meme stock mania briefly resurfaced.
Wednesday's surge put bitcoin on track for its best week since late March, snapping a six-week losing streak. The cryptocurrency has been roughly trapped between $60,000-$70,000 since setting new all-time highs in March before swiftly pulling back. Analysts expect bitcoin to remain range-bound for several more months barring major catalysts.
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