Bitcoin prices fell back this afternoon, giving up the impressive gains they experienced earlier in the day after markets responded to the latest headline inflation figures.
The world’s most valuable digital currency by total market capitalization dropped to $24,432.94 around 3:15 p.m. EST, CoinDesk figures show.
At this point, it had fallen close to 8% from the intraday high of $26,501.90 it reached this morning, its loftiest point in nine months, additional CoinDesk figures reveal.
The digital currency reached this multimonth high after the latest figures released by the U.S. Bureau of Labor Statistics showed that in February, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4%, down from a 0.5% gain in January.
Over the 12 months through February, this headline measure of inflation rose 6%, compared to 6.4% for the prior 12-month period.
This modest slowdown in price increases, which have reached multidecade highs over the last few years, could mean that Federal Reserve policymakers face less pressure to hike their benchmark rate’s target range in order to bring inflation under control.
Since increases in the aforementioned target range place upward pressure on broader lending costs, and therefore yields, a less aggressive schedule of benchmark rate hikes could prove bullish for bitcoin, a risk asset that doesn’t pay investors yields.
As yields push higher, investors have greater incentive to flock to interest-bearing instruments instead of putting their money into risk assets that don’t make fixed payments.
Fed officials have generated substantial visibility in recent years by increasing the target range for the central bank’s benchmark rate by 450 basis points, causing it to reach its highest since October 2007.
These officials are likely to provide further increases in the benchmark rate, according to figures recently pulled from the CME FedWatch Tool, which predicts upcoming policy moves by harnessing futures data.
Around 6:30 p.m. EST, this source of information provided roughly 80% chances that members of the Federal Open Market Committee would increase the federal funds target range by 25 basis points at their meeting scheduled to take place on March 21 and 22.
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 impact the decisions of Fed policymakers is the recent difficulty in the banking sector. Last Wednesday, Silvergate Capital Corporation, the holding company for Silvergate Bank, announced that it was going to liquidate the bank.
The financial institution suffered a bank run after FTX announced that it was declaring bankruptcy, according to Reuters.
Two days later, The Federal Deposit Insurance Corporation seized control of Silicon Valley Bank. This financial institution had been one of the 20 largest banks in the nation, according to USA Today.
On Sunday, the New York Department of Financial Services announced that it had taken possession of Signature Bank in an effort to protect depositors.
That same day, Jan Hatzius, chief economist for investment bank Goldman Sachs Group Inc., predicted that the Fed would hold off on increasing the target range for its benchmark 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.