Yerevan (CoinChapter.com) — Bitcoin dropped to $32,311 during the Asia-Pacific session Monday.
The plunge came as a part of a prevailing downside correction caused by the Federal Reserve’s decision to taper its loose monetary and expansive fiscal policy.
Last week, on Wednesday, the US central bank announced that it might raise its benchmark rates from the current 0-0.25% range by the end of 2023. With the announcement, Bitcoin’s appeal as a mythical inflation hedge got hampered.
The benchmark cryptocurrency’s net losses since Wednesday’s opening rate surged to 19.54% with the early Monday sell-off. Meanwhile, the short-term bearish sentiment also opened possibilities that Bitcoin tests its May 19 bottom target, $30,000, later this week.
Bitcoin against real yields
Another reason why Bitcoin could suffer is a recent rally in real yields. In simple terms, real interest rates adjust the observed market interest rates for the effects of inflation. A declining real yield, therefore, shows investors’ fear of higher inflation. Conversely, a rising one shows that investors expect inflation to drop lower.
Fed’s decision to hike rates by the end of 2023 came in the wake of higher-than-expected inflation data in April and May. The Consumer Price Index (CPI) data for April was 4.2%, and it surged to 5% in May. Now, with the central bank’s hawkish tone, officials expect the inflation readings to drop in the coming monthly sessions ahead.
“Our expectation is that these high inflation readings that we’re seeing now will start to abate.”— the Fed chair, Jerome H. Powell, said at a news conference on Wednesday.
Assets that don’t generate real returns (for example, gold) tend to suffer during periods of rising real yields. Bitcoin also checks this box.
Events this week
This week is relatively quieter in terms of events. Therefore, Bitcoin prices may not receive any major upside/downside cue from macroeconomic circles.
- On Tuesday, investors could choose to focus on Powell’s testimony before the US House of Representatives on Fed’s response to the coronavirus pandemic.
- On Thursday, Bank of England will release its rate decision. Investors could focus on Bitcoin in GBP-terms around the announcement.