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Bitcoin (BTC) experienced its most significant single-day gain in nearly two months on Wednesday, surging over 7.5% to reach $66,250.
The development follows recent reports that El Salvador’s Bitcoin holdings reached 5,750 BTC — worth over $378 million as of press time. Twitter founder Jack Dorsey recently predicted that Bitcoin will hit $1 million within the next six years.
The rally, which marks the largest percentage increase since March 20, comes as weak U.S. economic data has raised the likelihood of the Federal Reserve (Fed) joining other advanced nations in easing monetary policy through rate cuts during the summer months.
The U.S. Labor Department reported that the consumer price index (CPI) increased less than expected in April, signaling a renewed downward shift in the cost of living. The headline CPI rose 0.3% last month, following advances of 0.4% in March and February. Core CPI, which excludes food and energy prices, also rose 0.3% in April after a 0.4% increase in March. Additionally, retail sales growth stalled in April, with sales in the “control group” category, which contributes to GDP calculation, declining 0.3% month-on-month.
These lackluster economic indicators have significantly shifted rate-cut expectations. Fed funds futures indicate that traders anticipate the Fed to implement the first 25 basis point rate cut in September. The Fed has also signaled its intention to slow the pace of quantitative tightening, another liquidity tightening tool, starting in June.
A global shift
The Fed is not alone in this shift towards monetary easing. Markets expect the Bank of England (BOE) and the European Central Bank (ECB) to cut rates in June, while the Swiss National Bank (SNB) and Sweden’s Riksbank have already reduced their benchmark borrowing costs.
The growing trend of central banks worldwide pivoting towards renewed monetary or liquidity easing is a positive sign for risk assets, including cryptocurrencies. According to data from MacroMicro, the percentage of global central banks whose last move was a rate hike is falling rapidly, while the percentage of banks with rate cuts as their last move is on the rise. This suggests that the net percentage of central banks cutting rates is increasing, which could help improve market liquidity.
As the prospects for liquidity easing over the summer grow, equities are likely to find support, providing investors with the confidence to remain further out on the risk curve, according to broking firm Pepperstone.
