Bitcoin and other cryptocurrencies experienced a slight rise in prices on Tuesday, but remained within a well-worn trading range. Market observers are cautious about seeing this jump in prices as premature, considering the uncertain outlook for interest rates and the impending release of inflation data.
The price of Bitcoin has increased by 1.5% over the past 24 hours, reaching $30,500. It is currently trading in the middle of the range between $30,000 and $31,000, which has persisted for weeks during this period of stagnation. In June, Bitcoin saw a rally driven by news that traditional finance giants like BlackRock had applied for spot Bitcoin exchange-traded funds. However, the momentum from that news seems to have dwindled as the decision is still a long way off.
According to Brent Xu, CEO of Umee, a decentralized finance bond-market platform, “The bullish sentiment with Bitcoin may be getting ahead of itself. The initial momentum fueled by the spot Bitcoin ETF applications is now tapering off.”
In the absence of any specific catalysts for the cryptocurrency market, Bitcoin’s movement on Wednesday is expected to mirror the performance of the Dow Jones Industrial Average and S&P 500. This will be influenced by the release of the consumer-price index (CPI) for June, which is a critical measure of inflation and one of the last major economic indicators for the United States before the Federal Reserve’s upcoming decision on interest rates at the end of the month.
The Federal Reserve’s Aggressive Rate Hikes Impact Risky Assets
The Federal Reserve (Fed) has taken a proactive stance in combating the persistently high inflation that has plagued the economy since March 2022. This approach has involved raising interest rates, which consequently affects risk-sensitive assets such as stocks and cryptocurrencies. Historically, when rates and bond yields increase, these assets tend to experience a decline.
Although there was initial optimism at the beginning of the year, as risk assets rallied, indicating that the worst of the financial tightening was behind us, Fed officials have continued to emphasize their tough stance on inflation. Consequently, traders caution that there are still significant downside risks facing cryptocurrencies due to the uncertain outlook for interest rates. Market pricing suggests that rate hikes are expected in July and possibly September.
Market volatility is expected to increase as the market adapts to these unusually high rate hikes, leading many to believe that the recent rebound we witnessed will be short-lived. Xu, a seasoned market observer, expresses skepticism regarding the bullish sentiment and believes that smart traders are preparing for turbulent times ahead rather than anticipating a continuous bull market.
Ether and Altcoins Experience Varied Performance
In addition to the impact on Bitcoin, the second-largest cryptocurrency, Ether, has seen a slight increase of 1%, reaching $1,875. Meanwhile, smaller cryptocurrencies, also known as altcoins, have revealed more positive trends. Cardano has climbed by 3%, and Polygon has experienced a significant surge of 9%. On the other hand, memecoins such as Dogecoin and Shiba Inu have performed relatively modestly, each recording a 1% increase.