Bitcoin reacts to stubbornly high US inflation amidst Fed rate speculation

Bitcoin (BTC) experienced a notable 2.3% decline following the opening of Wall Street on March 12th. This decline came in response to the lingering concerns surrounding persistently high inflation rates in the United States, prompting speculation regarding the Federal Reserve’s future interest rate adjustments. Data indicates that BTC saw a significant drop of up to 6%, dipping to $68,636 on Bitstamp after reaching a new all-time high of $73,054 earlier that day.

Inflation data and Federal Reserve speculation

The market reaction was primarily influenced by the release of the February Consumer Price Index (CPI) data, which surpassed expectations with a 0.4% increase. According to data from the U.S. Bureau of Labor Statistics (BLS), the year-on-year CPI rate rose to 3.2%, exceeding estimates of 3.1% and January’s 3.1%. Escalating shelter and gasoline costs accounted for over 60% of the monthly CPI index rise.

Following the CPI release, discussions among market participants intensified regarding the possibility of the Federal Reserve adjusting interest rates in the upcoming months. Despite a mere 1% chance of a rate cut in March, according to the CME’s FedWatch tool, traders are contemplating the likelihood of rate adjustments later in the year, with the earliest potential cut projected for June.

Jamie Dimon, CEO of JPMorgan Chase, advocated for the Federal Reserve’s cautious approach, emphasizing the importance of data-driven decisions and maintaining credibility. Dimon suggested delaying rate cuts until later in the year, underscoring the potential prolongation of higher rates.

Meanwhile, inflows into spot Bitcoin exchange-traded funds (ETFs) contributed to mitigating the impact of inflation-induced sell-offs. Recent data from crypto intelligence firm Arkham revealed substantial inflows totaling approximately 55.78K BTC ($3.68B) into spot Bitcoin ETFs, aiding Bitcoin’s price recovery above $71,000.

ETF Trends and Fund Performance

Market analysts highlighted positive trends in ETF flows, particularly noting significant net inflows on March 11th. Notable contributions came from BlackRock’s iShares Bitcoin Trust (IBIT), holding Bitcoin assets worth $14.76 billion, and Fidelity’s Wise Origin Bitcoin Fund (FBTC), managing over $9.26 billion in BTC. The ARK 21Shares Bitcoin ETF (ARKB) also demonstrated robust performance, holding around $1.8 billion in Bitcoin assets.

Conversely, outflows from Grayscale Bitcoin Trust (GBTC) amounted to $11.04 billion over the past eight weeks, with a notable $494.1 million withdrawal recorded on March 11th, marking the highest daily capital outflow since January 23rd.