Bitcoin (BTC) experienced a 2% increase in the past 24 hours, bouncing back after struggling to surpass the $61,500 resistance level for two days. The upward movement, sustained above $62,500, demonstrates that Bitcoin can still see positive price fluctuations regardless of the outflows from the U.S. spot Bitcoin exchange-traded fund (ETF), which recorded $100 million in net outflows over four days.
Several factors have contributed to a more positive sentiment towards cryptocurrencies. China’s announcement of issuing $138 million in long-term bonds to stimulate the economy has been anticipated since March, but it reaffirms that governments recognize the increased risks of recession. This comes in response to data showing that China’s aggregate credit decreased in April for the first time in seven years.
Zou Wang, an investment director at Shanghai Anfang Private Fund Management, stated that the market expects further liquidity injections from China’s central bank, which could include interest rate cuts. These actions could worsen the issues caused by recent expansive measures from the U.S. Federal Reserve (Fed), which led to an increase in the U.S. monetary supply in March for the first time in two years.
While injecting more money into the economy may seem beneficial initially, it can lead to higher inflation over time, especially if companies and individuals delay spending and investment. As fixed-income investors realize that their returns are barely keeping up with rising inflation, scarce assets like Bitcoin become more attractive.
Investors are preparing for a continuous trend where governments will need to provide liquidity to prevent economic crises. Although some argue that this added liquidity would primarily benefit the stock market, high interest rates negatively impact companies by increasing their capital costs. Any debt issued in the past 16 years will face significantly higher rates when refinancing.
Last week, Fed officials hinted that interest rates might remain elevated for an extended period, indicating a careful strategy to delay inflationary pressures. The central bank’s actions aim to encourage more borrowing by companies and individuals to support employment and consumer markets. However, it remains uncertain how much of this borrowed money will be spent on scarce assets as a hedge against inflation, rather than stimulating the economy. Bitcoin investors remain skeptical about the Fed’s ability to achieve a smooth transition.
In addition, Bitcoin’s value was influenced on May 13 by an unexpected factor: the return of social media influencer “Roaring Kitty,” who played a key role in the GameStop (GME) stock rally in 2021. After being inactive on the X social network for nearly three years, the Bitcoin community is hopeful for some significant influence from this personality.
Cryptocurrency investors anticipate a positive shift in sentiment towards digital assets, driven by a growing distrust in banks and traditional finance, particularly in light of recent government bailouts. These developments are expected to attract more participants to cryptocurrencies.
Please note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making any decisions.