It was another volatile week for the bitcoin markets heavily impacted by two key economic events in the US on Wednesday:

1. The consumer price index (CPI) release
2. The fourth FOMC meeting of the year later in the afternoon.

Bitcoin started the week on a slightly bullish note, trading above $70,000 before settling at a price just slightly below $70k to finish the day on Monday. Tuesday turned out to be a red day, with bitcoin declining by 3% to as low as $66,000.

Wednesday was a roller-coaster of a day. Bitcoin price responded very bullishly to the CPI data release that came out at 8:30 AM EST. The year-over-year CPI print came in at 3.3%, 0.1% lower than the 3.4% estimate. The cool print was enough to send bitcoin soaring close to 2% or $1,500 in minutes, and the rally continued into the afternoon.

At one point, the market erased all of Tuesday’s losses, as bitcoin was able to tag the $70k zone again. In the context of crypto and financial markets in general, a lower-than-expected inflation read is considered a bullish sign, as this would encourage the Federal Reserve to lower interest rates faster and more aggressively. Risk-on assets especially love low-interest rate environments, hence the bullish reaction to the CPI data.

The tides turned, however, when the FOMC press conference started at 2:30 PM EST later Wednesday afternoon. Although the Fed kept rates unchanged as expected, traders and investors turned their ears toward Powell’s statements and tone regarding the likelihood and timing of potential interest rate cuts later in the year.

Powell’s words elicited a bearish reaction, with his hawkish tone indicating hesitancy about future interest rate cuts. Notably, in March, ten Fed members anticipated rates at 4.625% or below by the end of 2024, implying at least three cuts. Now, none foresee such reductions.

Currently, there’s only a 50/50 chance of a rate cut in November, with a higher probability in December. Following Powell’s comments, bitcoin and equity markets pulled back from their post-CPI highs, as markets had hoped for more aggressive language regarding imminent rate cuts. By the end of the trading session, bitcoin gave up its early gains and returned to $67,300, retracing the entire morning rally and falling nearly 4% or $3,000 from the initial CPI data euphoria.

It is also worth noting that while equity markets such as the Nasdaq and S&P 500 are closing on new highs this week, bitcoin and most other crypto assets have been unable to achieve the same bullish price momentum as traditional asset classes in the past few weeks.

The divergence could be a result of investors chasing equity market returns as they make new highs, which might be incentivizing larger players to sell off their crypto holdings in the short term.

By week’s end, bitcoin closed Friday’s trading session well off its highs, ending the week at $65,945, representing a decline of nearly -6% for the past week.

ETF Flows Update

With bitcoin’s price decline, it was no surprise to see ETF inflows take a turn south as well, breaking their 19 consecutive day winning streak. This week saw 4 out of 5 days of negative flows, with the highest outflows coming from Grayscale’s GBTC fund on Tuesday, with over $121 million in assets exiting, followed by Fidelity’s FBTC fund on Thursday, which saw upwards of $106 million in AUM exiting.

Total aggregate assets at the end of the day Friday stood at $57.2 billion, representing a -8.56% decline from the all-time high set last week of $62.56 billion.
Despite a down week, this is a natural part of the ebb and flow nature of the markets. On weekly and higher time frames, bitcoin is still trading above all major technical moving averages and by textbook definitions remains in a bullish price structure for the time being.

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