Bitcoin is facing significant headwinds as the US Federal Reserve maintains a tighter approach to controlling inflation. On Tuesday, July 2, Federal Reserve Chairman Jerome Powell expressed cautious optimism about the latest inflation data but reiterated the need for continued improvement before considering rate cuts.
Recent readings suggest the market is back on track for inflation, Powell said, but needs to see progress toward the 2% target.
The Fed’s main inflation measure, the Personal Consumption Expenditures (PCE) price index, showed a decline, rising 2.6% over the past year, down from about 4% a year earlier. However, policymakers believe that inflation will not reach the Fed’s 2% target until 2026. This situation indicates that interest rates may remain high for a long time, which may reduce liquidity in financial markets.
This environment is a challenge for risky assets like Bitcoin, which often thrive on liquidity and investor enthusiasm. With tighter financial conditions, investors are likely to favor safer assets like government bonds, leaving the top currency with less support. The impact of these macroeconomic factors on Bitcoin is profound, as devaluation often leads to lower demand for high-risk investments.
Miners Hear the Squeeze
Bitcoin miners are facing more pressure as operating costs rise. These miners, who are responsible for verifying transactions and maintaining the blockchain, have been withdrawing their assets to cover the costs. This selling trend has been putting additional downward pressure on BTC prices. As prices drop, many miners are forced to sell their Bitcoin to preserve profits, creating a cycle of pressure selling.
Institutional Investors Take a Cautious Stance
Institutional interest in Bitcoin appears to be cooling, with inflows into Bitcoin ETFs (Exchange Traded Funds) falling sharply. The initial excitement surrounding these investment vehicles, which allow institutions to gain exposure to Bitcoin without directly holding the asset, has waned. This reflects a more cautious attitude from large investors who are aware of the current market conditions.
BTC went down in the last 24 hours. Source: Coingecko
What’s Next for Bitcoin?
The near-term outlook for Bitcoin remains uncertain. Analysts suggest that the price may have a sideways movement, known as “nowhere fast,” or drop to the $54,000 mark. Investors are closely monitoring the actions of the Federal Reserve, hoping for signs of a shift in monetary policy that may provide some relief to the cryptocurrency market.
Currently, investors are focused on protecting the support level of $60,000. However, continued selling pressure from miners and other market participants could push the price of Bitcoin further down. The market is on edge, waiting to see how these various factors play out and whether Bitcoin can maintain its current levels or face further declines.
Featured image from Pexels, chart from TradingView
Source link
