Bitcoin (BTC) experienced a substantial surge on May 15, marking its most significant single-day rise in nearly two months. The cryptocurrency’s value increased by over 7.5%, reaching $66,250. This surge was driven by weak economic data in the United States, which raised the likelihood of the Federal Reserve (Fed) cutting interest rates in September. When borrowing costs for traditional currencies are lowered, alternative investment options such as altcoins become more appealing, leading to an increase in Bitcoin’s value as well as other risky assets.
Fed Expected to Cut Interest Rates by 25 Basis Points
On May 15, the US Department of Labor released data indicating that the consumer price index (CPI) had increased less than expected in April. This suggests a decline in living costs in the US, with the headline CPI rising by 0.3% compared to 0.4% in March and February. The core CPI, which excludes volatile food and energy prices, also rose by 0.3% in April compared to a 0.4% increase in March. These figures indicate a potential easing of inflationary pressures.
In addition to the CPI data, US retail sales figures for April were disappointing. Headline retail sales growth stalled, and the “control group” category used in GDP calculations saw a monthly decline of 0.3%. These weak economic indicators have significantly shifted market expectations towards a Fed rate cut. Investors now anticipate a 25 basis point interest rate cut by the Fed in September, coinciding with the period from June 20 to September 22. The Fed has also signaled a slowdown in quantitative tightening measures, further easing liquidity constraints starting in June.
Other Central Banks Also Preparing for Rate Cuts
The expectation of rate cuts extends beyond the Fed. Market participants also anticipate interest rate reductions by the Bank of England (BOE) and the European Central Bank (ECB) in June. The Swiss National Bank (SNB) and Sweden’s Riksbank have already lowered their benchmark borrowing costs. This global trend towards monetary easing benefits risk assets like Bitcoin and altcoins by increasing market liquidity.
Data from MacroMicro, a website that tracks market data, confirms this trend. The percentage of global central banks raising interest rates has decreased, while the percentage lowering them has increased. This shift indicates that more central banks are moving towards rate cuts, which could enhance market liquidity. According to MacroMicro, higher rates of interest rate cuts by central banks generally lead to improved market liquidity, while lower rates indicate tighter liquidity conditions.
Pepperstone, a brokerage firm, also supports this view, suggesting that the expectation of increased liquidity over the summer will support equities. This will provide investors with more confidence to undertake higher-risk investments, benefiting Bitcoin and altcoins. The expectation of easier monetary policies from major central banks creates a favorable environment for Bitcoin and altcoins, as evidenced by the significant price increases observed on Wednesday.
Please note that this article does not constitute investment advice. Investors should be aware of the high volatility and risk associated with cryptocurrencies and conduct their own research.
