Bitcoin (BTC) saw a significant surge on May 15, marking its largest single-day increase in almost two months. The price rose by over 7.5% to reach $66,250. This jump was fueled by weak economic data in the United States, which increased the likelihood of the Federal Reserve (Fed) cutting interest rates in September. When borrowing costs for traditional currencies decrease, alternative investment options like altcoins become more appealing, leading to a rise in Bitcoin and other risky assets.
The US Department of Labor released data on May 15 that showed the consumer price index (CPI) had increased less than expected in April. This suggests a decrease in living costs in the US, with the headline CPI rising by 0.3% in April 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 that inflationary pressures may be easing.
Alongside the CPI data, US retail sales figures for April also disappointed. 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 significantly shifted market expectations towards a Fed rate cut. Investors now anticipate a 25 basis points 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, which will further ease liquidity constraints starting in June.
The expectation of rate cuts is not limited to the US. Market participants also anticipate interest rate reductions from the Bank of England (BOE) and the European Central Bank (ECB) in June. Additionally, the Swiss National Bank (SNB) and Sweden’s Riksbank have already lowered their benchmark borrowing costs. This global trend towards monetary easing is beneficial for risk assets, including Bitcoin and altcoins, as it increases market liquidity.
Data from MacroMicro, a website that tracks market data, confirms this shift. The percentage of global central banks raising interest rates has decreased, while the percentage lowering them has increased. This change suggests that more central banks are now moving towards rate cuts, which can 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.
Brokerage firm Pepperstone also supports this view, stating that the expectation of increased liquidity over the summer will support equities. This will give investors more confidence to take on higher-risk investments, with Bitcoin and altcoins being the primary beneficiaries. The anticipation of easier monetary policies from major central banks creates a favorable environment for Bitcoin and altcoins, which is reflected in the significant price increases witnessed on Wednesday.
Please note that the information provided in this article should not be considered investment advice. Investors should be aware that cryptocurrencies carry high volatility and risk and should conduct their own research.