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The bitcoin price, still down nearly 70% from its all-time high as lawmakers consider bitcoin’s future, is still reeling after various collapses in the crypto industry have sparked dire warnings that some other major cryptocurrencies could fail.
Now, the bitcoin and crypto markets are closely watching the next US consumer price index (CPI), due on Wednesday, which could mean that the Federal Reserve will scale back its planned interest rate hike at its September meeting.
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“A slowdown in inflation could mean the Fed may cut back on their rate hike from the September meeting,” Yuya Hasegawa, bitcoin and crypto market analyst at Bitbank, wrote in an emailed comment.
This week, the latest US jobs report showed employment rose by more than double expectations, dampening the possibility of a U-turn at the Fed after the US recorded two consecutive periods of economic contraction – a technical indicator of a recession.
“Of course, the market is not yet fully convinced until they see the July CPI, which is scheduled to be announced next Wednesday, but inflation is likely to ease in July due to lower oil prices, and bitcoin is likely to benefit from expectations of a slower interest rate increase.”
The Fed has battled soaring inflation this year, embarking on a series of historic rate hikes and scaling back its massive pandemic-era stimulus measures that have weighed on bitcoin, crypto and stock markets.
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“If the Fed really blinks and pulls back on raising interest rates at the projected pace, the market is likely to take that as a positive catalyst,” Cumberland, a Chicago-based market maker, wrote in a report surveying investors who predicted Bitcoin’s price would return to $32,000 this year — potentially adding $180 billion to bitcoin’s market cap.
“It’s fascinating that even after a severe sell-off, at a moment when the market motto had been to risk everything, the average respondent was still extremely positive.”
Cumberland analysts see a strong possibility that the Fed will dial back its hawkish program in the coming months.
“In our view, this is not so strange; the shape of the forward curve already predicts a chance of a rate cut in 2023.”