Bitcoin prices are making gains after rallying earlier today
Bitcoin prices fell back this afternoon, giving up the impressive gains they experienced earlier in the day after markets reacted to the latest headline inflation numbers.
The world’s most valuable digital currency by total market capitalization fell to $24,432.94 around 3:15 p.m. EST, CoinDesk figures show.
By this point, it had fallen nearly 8% from the intraday high of $26,501.90 it hit this morning, its highest point in nine months, additional CoinDesk figures show.
The digital currency reached this multi-month high after the latest figures released by the US Bureau of Labor Statistics showed that the consumer price index for all urban consumers (CPI-U) rose 0.4% in February, down from a 0.5% increase in January .
In the 12 months to February, this headline inflation measure rose 6%, compared with 6.4% for the previous 12-month period.
This modest slowdown in price increases, which have hit multi-decade highs in recent years, could mean Federal Reserve policymakers face less pressure to raise the benchmark interest rate’s target range to bring inflation under control.
Since increases in the aforementioned target range put upward pressure on broader lending costs, and therefore yields, a less aggressive plan for benchmark interest rate hikes could prove bullish for bitcoin, a risk asset that does not pay investors returns.
As yields increase, investors have a greater incentive to flock to interest-bearing instruments rather than putting their money in risky assets that do not make fixed payments.
Fed officials have created significant visibility in recent years by raising the target range for the central bank’s benchmark interest rate by 450 basis points, taking it to its highest level since October 2007.
Those officials are likely to provide further increases in the benchmark interest rate, according to figures recently obtained from the CME FedWatch Tool, which predicts upcoming policy moves by leveraging forward-looking data.
Around 6:30 PM EST, this information source gave about an 80% chance that members of the Federal Open Market Committee would increase the target range for federal funds by 25 basis points at their meeting scheduled for March 21st and 22nd.
The aforementioned data source also showed 20% odds that FOMC policymakers will leave the current target range intact at this month’s meeting.
The screenshot below illustrates these probabilities:
Banking sector uncertainty
Another development that could influence the decisions of Fed policymakers is the recent difficulties in the banking sector. Last Wednesday, Silvergate Capital Corporation, the holding company for Silvergate Bank, announced that it will liquidate the bank.
The financial institution was hit with a bank run after FTX announced it was filing for bankruptcy, according to Reuters.
Two days later, The Federal Deposit Insurance Corporation took control of Silicon Valley Bank. This financial institution had been one of the 20 largest banks in the country, according to USA Today.
On Sunday, the New York Department of Financial Services announced it had seized Signature Bank in an effort to protect depositors.
On the same day, Jan Hatzius, chief economist of investment bank Goldman Sachs Group Inc., predicted that the Fed would wait to raise the target range for the benchmark interest rate at its next meeting, according to CNBC.
“In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22,” he wrote in a note, according to the news source.
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.
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