Although the price remains above $60,000, Bitcoin dropped yesterday after U.S. wholesale inflation in April exceeded economists’ expectations, rising 0.5% versus a forecast of 0.3%. Traders are closely monitoring inflation data, including the Producer Price Index (PPI) released on Tuesday and the Consumer Price Index (CPI) expected today, for clues on future Federal Reserve interest rate decisions.

Higher-than-expected inflation could prompt the Federal Reserve to maintain high interest rates longer, discouraging investments in risk assets like Bitcoin. Following the PPI release, there is a 29.2% chance of a rate cut in July and a 48.9% chance in September, while a 91.3% chance exists that rates will remain unchanged in June. The GM 30 Index, representing a selection of the top 30 cryptocurrencies, also fell by 2.18% during this period.

According to a CoinShares report, Bitcoin’s price is again influenced by U.S. Federal Reserve policies. With the waning excitement around Bitcoin ETFs, interest rate trends have become the main driver of Bitcoin’s price fluctuations. James Butterfill, head of research at CoinShares, noted that over the past 40 trading days, Bitcoin’s movements have increasingly aligned with interest rate expectations for June. The market expects rates to remain stable in June, with a possible decrease in the fourth quarter. The core PCE inflation, the Fed’s preferred metric excluding food and fuel, has stubbornly remained at 2.8% for several months, while GDP growth slowed to 1.6% in Q1 2024. These indicators, along with a slowdown in manufacturing and services sectors, fuel stagflation fears. In response, the Fed has kept its policy rate above 5.25% while announcing a reduction in the pace of its quantitative tightening, a favorable measure for Bitcoin. CoinShares anticipates that the Fed might cut rates later this year, supporting Bitcoin prices due to its fixed supply and high immutability.

The State of Wisconsin Investment Board disclosed in a 13F filing with the SEC that it held nearly $100 million in shares of the iShares Bitcoin Trust, a spot Bitcoin ETF managed by BlackRock, at the end of Q1 2024. The board owned 2,450,400 shares of this ETF, along with 1,013,000 shares of the Grayscale Bitcoin Trust (GBTC) valued at $63.7 million at the end of March. Additionally, the board’s portfolio included shares of various cryptocurrency-related companies such as Coinbase, Marathon Digital, Riot Platforms, Block, Cipher Mining, Cleanspark, and MicroStrategy. This disclosure highlights the growing interest of large institutions in crypto-related financial products, with analysts like Eric Balchunas of Bloomberg noting the speed of this engagement compared to usual expectations for large institutions.

Bitcoin exchange-traded funds (ETFs) saw positive investments for the first time in over a month, according to a CoinShares report. Last week, $130 million was invested in these funds after five weeks of outflows. Most of these movements were observed in U.S. funds, particularly new spot ETFs that offer traditional investors exposure to Bitcoin. The report also highlighted a $14 million withdrawal from Ethereum-related funds by European investors, due to bearish sentiment surrounding the approval of an Ethereum ETF by the SEC. Despite this, the Grayscale Bitcoin Trust (GBTC) experienced the lowest capital outflow since its conversion to an ETF in January, with more investors buying GBTC shares than selling them. This trend could support Bitcoin prices.

Bitcoin mining difficulty dropped by nearly 6% to 83.1 trillion hashes, according to BTC.com data. This drop results from a combination of Bitcoin’s price decline and reduced mining rewards following the recent halving event, which cut miners’ rewards from 6.25 BTC to 3.125 BTC per block. Consequently, many miners have ceased operations due to insufficient profit margins, reducing the network’s hash rate. This phenomenon is common after a halving, according to Nishant Sharma of BlocksBridge Consulting. Less efficient miners unplug their machines, leaving more rewards for leaner operations. Scott Norris of Optiminer adds that this process is healthy for the network and well-positioned miners, who can improve their technology and find cheaper energy sources. While Bitcoin’s current price decline makes mining less profitable, this situation is expected and typical based on past halvings.

Bernstein analysts believe Bitcoin’s stagnant price could benefit miners, especially when hash rate wars drive the economics. They predict Bitcoin’s price will stay in a stable range (high $50Ks to low $60Ks) before rising, supported by the growing adoption of Bitcoin ETFs by investment advisors, wealth platforms, and other institutional funds.

Vitalik Buterin, co-founder of Ethereum, proposes changing the network’s transaction fee structure to make it more equitable and customized, potentially resembling Solana’s fee model. This proposal, called “multidimensional gas fees,” has excited Ethereum users due to the prospect of lower fees and caught the attention of Solana users and developers who noticed similarities with Solana’s “local fee markets” model. Gas fees are transaction costs paid by blockchain users. On Ethereum, high demand can drive up these fees, while Solana’s model calculates fees in isolation for each project, limiting the impact of demand spikes to specific projects. Buterin’s proposal aims to make Ethereum transaction costs fairer by distinguishing between different categories of effort required for transactions, such as computation, storage, and data. However, unlike Solana, this approach does not create isolated fee ecosystems for each project but differentiates costs based on resource consumption.

Bitcoin’s price could soon break out of its current range, according to an inverse head and shoulders pattern observed on the chart. This technical setup, typically signaling a bullish reversal, is currently evident on Bitcoin’s daily chart. Additionally, technical indicators like the MACD and Relative Strength Index (RSI) show signs of bullish momentum. However, macroeconomic developments, particularly Consumer Price Index (CPI) data, could significantly impact the short-term price.

Need some optimism? Jack Dorsey, co-founder of Twitter and Block, recently predicted that Bitcoin’s price could reach $1 million by 2030. A staunch supporter of cryptocurrency, Dorsey highlighted that collective efforts to improve Bitcoin strengthen its ecosystem and increase its value. His company, Block, has heavily invested in developing Bitcoin-related products, such as wallets and mining chips.

Additionally, the Rivemont Crypto Fund recently took its first position in Solana.

The presented information is as of May 15th, 2024, unless otherwise indicated and is provided for information purposes only. The information comes from sources that we believe are reliable, but not guaranteed. This statement does not provide financial, legal or tax advice. Rivemont Investments are not responsible for any errors or omissions in the information or for any loss or damage suffered.