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Economists predict that the yearly Consumer Price Index (CPI) will rise to 4.7 percent.
The price of Bitcoin (BTC) recaptured $36,000 headed into the New York session Wednesday, as investors anticipated new data on May inflation and El Salvador ratified a measure making cryptocurrency legal cash in the nation.
The benchmark cryptocurrency rose 9.86 percent to an intraday high of $36,696, recouping some of the previous session’s losses. In hindsight, the BTC/USD exchange rate had dropped to around $31,000 on Tuesday on expectations that the pair had started a negative period similar to that of 2018, after peaking above $65,000 in mid-April.
#Bitcoin on the charts: Key levels to watch come in at $30,000 and $47,000. Below $30,000 opens possibility for deeper setback towards the previous record high from late 2017 around $20,000. Back above $47,000 will put the focus back on the current record high. $BTCUSD #crypto pic.twitter.com/X6d23G0FiH
— LMAX Group (@LMAX) May 25, 2021
Bulls, on the other hand, continued to view Bitcoin as a major instrument against inflation, with Mike McGlone, senior commodity analyst at Bloomberg Intelligence, stating that the cryptocurrency’s chances of hitting $40,000 in the next sessions are more than its chances of reaching $20,000. He stated that:
Capitulation? $40,000 Appears More Likely Than $20,000 — The June 8 Bitcoin plunge and revisit of lower-end-range support around $30,000 had many of the earmarks of extreme bearish sentiment typical of more enduring bull-market bottoms.”
The great Central American pump
Bitcoin received further upside boost from El Salvador. The Central American country, under the leadership of its president Nayib Bukele, became the first nation to approve Bitcoin as its legal tender.
The regulation will go into effect in 90 days, allowing Salvadorans to pay for and accept products and services using Bitcoin. They will be able to pay taxes in cryptocurrencies as well.
Bukele also stated that El Salvador will mine Bitcoin using the country’s “volcano energy” The declaration was made in reaction to Tesla CEO Elon Musk’s declaration of a Bitcoin payment halt due to environmental concerns. Musk’s move sparked widespread panic among investors, resulting in a significant drop in the cryptocurrency market.
Elon never anticipated his #Bitcoin energy FUD would be met with the Volcano energy hammer.
— Vijay Boyapati (@real_vijay) June 9, 2021
Key inflation data ahead
Bitcoin’s latest move uphill also emerged out of technical supports. At around $31,000, traders expressed a short-term bullish conviction because of the cryptocurrency’s ability to hold $30,000 as support in the recent history.
For instance, on May 19, Bitcoin jumped by more than 40% overnight after testing $30,000 as a price floor.
Yuriy Mazur, head of the data analysis department at CEX.IO Broker, noted that BTC/USD could hold levels around $30,000 as support despite the latest setback. The senior analyst cited higher inflation behind his bullish analogy. He told Cointelegraph:
“Given the current pullback in Bitcoin, the fact that analysts expect the U.S. CPI to rise to 4.7% may be a serious factor driving BTC/USD higher […] Eventually, Bitcoin could be a big winner in the event inflation continues to rise, which certainly looks to be the case.”
The declarations came amid expectations that the Federal Reserve will eventually raise interest rates to achieve its desired inflation target of 2%. In an interview with Bloomberg, US Treasury Secretary Janet Yellen underlined that higher interest rates would be beneficial.
A higher rate tends to dampen investor interest in hedging assets such as Bitcoin and gold.
However, Yuriy believes that a rate rise would not harm Bitcoin’s popularity among investors, pointing out that pricey financing would reverse gains in major U.S. stock market indexes. He continued, saying:
“If the Fed takes a hawkish stance on rate hikes, it will slow down the inflation but will put considerable risks of a collapse on the stock market as loans will quickly rise in value for the business. In this scenario, Bitcoin could also attract more funds as a virtually last-resort store of value in the times of high economic risks as more investors would be looking for a safe-haven to put their money in.”
The U.S. CPI data will be released on Thursday.