As the US Federal Reserve has a strict attitude to lower inflation, Bitcoin is confronting major challenges. Federal Reserve Chairman Jerome Powell expressed cautious optimism on Tuesday, July 2, regarding recent inflation figures but underlined the necessity of ongoing progress before thinking about rate reduction.
Powell said that although the latest data point to the market returning on a disinflationary route, it still has to see continuous improvement towards the 2% objective.
Rising by 2.6% over the last year, the Personal Consumption Expenditures (PCE) price index, the Fed’s main inflation indicator, has dropped from almost 4% a year ago. Nonetheless, legislators think that until 2026 inflation won’t meet the Fed’s 2% objective. This posture suggests that interest rates could stay high for a long time, therefore affecting the liquidity in financial markets.
For riskier assets like Bitcoin, which usually flourish on lots of liquidity and investor enthusiasm, this surroundings is difficult. Investors are more inclined to choose safer assets like government bonds, which leaves the top coin with less backing, under more limited financial conditions. These macroeconomic elements have a significant influence on Bitcoin as lower demand for high-risk investments usually results from less liquidity.
Miners Feeling The Squeeze
As running expenses climb, bitcoin miners are under more pressure. Responsible for maintaining the blockchain and confirming transactions, these miners have been unloading their assets to pay for costs. BTC prices have been under further downward pressure from this selling trend. More miners are driven to sell their Bitcoin to keep profitability as prices fall, therefore generating a cycle of selling demand.
Institutional Investors Take A Cautious Stance
With inflows into Bitcoin ETFs (Exchange Traded Funds) drastically slowing down, institutional curiosity in Bitcoin looked to have cooled. The first buzz about these investment vehicles—which let institutions expose to Bitcoin without really owning the asset—has faded. This shows a more circumspect attitude from big investors concerned about the state of the market.
BTC down in the last 24 hours. Source: Coingecko
What’s Next For Bitcoin?
The immediate future of Bitcoin is yet unknown. Analysts speculate that the price may go sideways—that is, “go nowhere fast”—or perhaps drop to the $54,000 level. Closely observing the Federal Reserve’s actions, investors hope for indications of a change in monetary policy that would help the bitcoin market somewhat.
Investors nowadays are mostly concerned in maintaining the $60,000 support level. Still, ongoing mining and other market participant selling pressure might lower Bitcoin’s price even further. The market is on edge, ready to observe how these several elements interact and if Bitcoin can keep its present levels or see more falls.
Featured image from Pexels, chart from TradingView