Weak Inflation Data Keeps Bitcoin in Recovery

Slowing inflation in the US could prompt the Federal Reserve to cut rates, benefiting Bitcoin and other risk assets.

The price of Bitcoin rose 0.90% this Wednesday, closing at $83,680, following lower-than-expected US inflation data. The slowdown in inflation could reduce pressure on the Federal Reserve (Fed) to maintain high rates, which would benefit risk assets, including cryptocurrencies.

Bitcoin reached a high of $84,539, approaching the 200-period moving average (EMA200) at $85,700, which acts as key resistance. / Tradingview

US Inflation: Key Data

• Core Inflation Rate MoM: 0.2% (vs. 0.3% expected).
• Core Inflation Rate YoY: 3.1% (vs. 3.2% expected).
• Inflation Rate MoM: 0.2% (vs. 0.3% expected).
• Inflation Rate YoY: 2.8% (vs. 2.9% expected).

This data suggests a slowdown in inflationary pressure, which could lead the Fed to consider rate cuts in 2025.

According to the CME Group tool, the odds that the Fed will keep interest rates at 4.50% at its next meeting on March 19 are 98%. However, the probability of a rate cut to 4.25% by June 18 has increased to 68.8%. This reflects a growing consensus about possible monetary policy easing in the medium term.

Effects on the Dollar and Risk Assets

Weakening Dollar:
Lower inflation reduces the likelihood of the Fed raising rates, which could weaken the dollar. The DXY index is already showing signs of pressure, benefiting risk assets.

Bitcoin as a Safe Haven:
Bitcoin, historically inversely correlated with the dollar, could benefit from this scenario. Investors could view the leading cryptocurrency as a safe haven amid monetary uncertainty.

Crypto Market Recovery:
Open interest in Bitcoin futures increased 1.18%, reaching $47.14 billion, suggesting increased investor interest. Additionally, the spot market saw inflows of $170.78 million, confirming the rebound.

ETF and Options Market

• Bitcoin ETFs: After net outflows of $371 million on Tuesday, partial inflows of $76.30 million were recorded this Wednesday, indicating a possible reversal.
• Bitcoin Options: Open interest rebounded to $33.43 billion, with 63.49% of bets placed on call options (bullish), suggesting expectations of a short-term upside.

What to Expect?

Bitcoin reached a high of $84,539, approaching the 200-period moving average (EMA200) at $85,700, which acts as key resistance. Although the market maintains a bearish bias, the price is in the oversold zone, which could prompt a renewed attempt to break above the resistance.

Where Is Bitcoin Going?

The slowdown in inflation in the US and the potential weakening of the dollar create a favorable environment for Bitcoin and other risk assets. However, investors should pay close attention to the Fed's decisions and key resistance levels, such as the EMA200 at $85,700.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrencies are volatile assets; invest responsibly and conduct your own research.