Bitcoin's movements in July have been notably volatile due to both economic trends and specific factors within the cryptocurrency market. On Tuesday, Bitcoin briefly rose to $58,000 before dropping to $57,000 after Federal Reserve Chair Jerome Powell's recent testimony. This surge was short-lived as Powell mentioned the Fed is in no rush to cut interest rates, focusing instead on inflation risks.
Fed balances risks amid Bitcoin volatility
Powell stressed the need for strong data to inform their decisions, highlighting that policymakers are cautious about inflation. He said, "We’re balancing those two risks. That’s our main focus these days." He noted the goal of reaching a steady 2% inflation rate, which will guide future actions.
Despite his careful tone, Powell acknowledged the strength of the labor market and steady economic growth. He committed to making data-driven decisions at each meeting to determine the right policy.
June's Consumer Price Index (CPI) data, expected on July 11, is likely to show a drop from 3.3% to 3.1%. This decrease in inflation could potentially raise Bitcoin prices, although investors remain cautious. The Relative Strength Index (RSI), a momentum indicator, is below 50, showing weak bullish sentiment despite Bitcoin's attempts to recover.
Analysts and experts react to Bitcoin's stability
Analysts like Rekt Capital and Keith Alan, co-founder of Material Indicators, are optimistic about Bitcoin's stability, pointing out crucial support levels. Alan emphasized the importance of the $54,000 range as a support base, showing confidence in Bitcoin's resilience against further drops.
However, Bitcoin has faced significant downward pressure, falling 15% over the past month. Market observers cite various factors, including selling pressure from Bitcoin miners, Mt. Gox refunds, and actions by the German state of Saxony. Greg Cipolaro, head of research at NYDIG, suggested these factors' impact might be exaggerated, noting that market psychology could be driving the price drop.
Cipolaro mentioned investors have been closely watching transactions related to Mt. Gox, the U.S. government, and Saxony, which collectively hold over $20 billion worth of Bitcoin. Concerns about mass sales have risen, but Cipolaro noted that even coordinated sales by these entities wouldn't fully explain the recent price decline based on traditional indicators.
Furthermore, Cipolaro disputed the idea that Bitcoin miners are selling off their holdings extensively. He pointed out that publicly listed mining companies increased their Bitcoin holdings in June, with sales still below earlier levels this year. Cipolaro warned against over-interpreting blockchain data without understanding transaction contexts, as movements to exchanges might not mean actual sales.
Powell's inflation and growth concerns
On a broader economic scale, Powell highlighted the Fed's delicate balancing act. He expressed concerns that keeping interest rates too high for too long could hurt economic growth. Despite some easing in inflation, Powell stressed the risk of reducing policy restraint too late or too little, potentially weakening economic activity and jobs.
With the Fed's current overnight borrowing rate at its highest level in 23 years after 11 consecutive hikes, it shows the central bank's strong response to high inflation. Markets predict rate cuts starting in September, though FOMC members have hinted at only one cut.
Powell's recent comments were part of the Fed's semiannual monetary policy updates. His testimony before the Senate Banking Committee and the House Financial Services Committee involved responses to lawmakers calling for rate cuts to protect jobs and avoid a recession. Powell insisted the Fed remains politically neutral, focusing solely on its mandate.
The economic situation is complex, with rising unemployment and slowing GDP growth. Both manufacturing and services sectors reported contraction in June. Despite these signs, Powell maintained that the U.S. economy is growing steadily, driven by strong private domestic demand and consumer spending.
