As investors await the return of money printing, the price of Bitcoin shows strength
Bitcoin (BTC) increased by 2% in the last 24-hours, recovering from the $61,500 resistance after two days of trouble. Maintaining a price level above $62,500, the current upside move shows that Bitcoin may still experience positive price swings regardless of the US position, where Bitcoin has seen a net inflow of $100 million in four days.
The outlook for cryptocurrencies has improved since China announced a $138 million long-term bond issue to boost its economy. Although this was expected from the announcement in March, it reaffirmed that governments are raising downside risks. This was in response to data indicating that China's overall credit rating contracted in April for the first time in seven years.
Zhou Wang, director of investment at Shanghai Anfang Private Fund Management, told Reuters the market now expects more liquidity injections from China's central bank, possibly including interest rate hikes. Such measures would exacerbate issues stemming from the recent wide-ranging measures taken by the US Federal Reserve (Fed), which increased the US money supply in March for the first time in two years.
At first glance, putting more money into the economy seems beneficial, but over time it can lead to higher inflation, especially as companies and individuals may delay spending and investment. As fixed-income investors begin to see their returns keep pace with rising inflation, rare assets like Bitcoin may become more attractive.
Finally, investors are preparing for a continuing trend in which governments want to continue providing money to stave off economic crises. While some argue that the stock market primarily benefits from this additional liquidity, higher interest rates hurt companies by increasing their cost of capital. Any debt issued within the past 16 years will face significantly higher rates when refinanced.
Last week, Fed officials hinted that interest rates may be on hold for longer, Yahoo Finance reported. Minneapolis Fed Chairman Neel Kashkari specifically said, “I think it's much more likely that we'll be sitting here than we expected,” and Chicago Fed Chairman Austin Golsbe said, “I think we're waiting.” It is carefully designed to slow inflation.
Basically, the US central bank's actions are aimed at encouraging more lending by companies and individuals to support the labor and consumer markets. However, what the Fed cannot predict is how much of this borrowed money will be spent on scarce resources to prevent inflation rather than stimulate the economy. It seems too early to fully assess such risks, but Bitcoin investors remain skeptical of the Fed's chances of a soft landing.
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Additionally, Bitcoin's value was unexpectedly impacted on May 13: the return of social media influencer “Roaring Kitty,” a former marketer who played a major role in GameStop's (GME) stock rally in 2021. It has been inactive on X. The social network has been around for three years, and it seems that the Bitcoin community is hoping to gain an impressive influence from this personality.
Cryptocurrency investors are anticipating a positive shift toward digital assets amid growing distrust in banks and traditional finance, including the rescue of Philadelphia-based Republic First Bank. These investors believe that these developments could drive more participants into cryptocurrencies.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
