Bitcoin price hit a new yearly high at $31,840 yesterday, leading market participants to wonder about the drivers behind this bullish momentum.
The power of economic indicators
One of the crucial factors contributing to Bitcoin’s upward trajectory was the release of United States Producer Price Index (PPI) data. The latest data showed a significant slowdown in inflation, with the annualized PPI falling to 0.1% in June, beating expectations and marking the lowest pace since August 2020. In particular, the core annualized PPI came out at 2.4%, slightly below the estimated 2.6%, reinforcing the idea of a declining inflationary environment.
This fall in the PPI is seen as a positive sign for the consumer price index (CPI), which gives hope for a more stable economic landscape. Macro researcher Mortensen Bach emphasized the importance of the impact of PPI, stating: “PPI always leads CPI. Inflation is no longer a thing and input prices clearly indicate that! Deflation remains the main risk going forward. This is what happens when you have a Federal Reserve blindly focused on backward data!”
Echoing these sentiments, macro analyst Ted added, “PPI inflation leads CPI by a few months…and today’s PPI numbers are running at +0.24% year-over-year. Almost in deflation! Fed running anyone?
Also worth noting is that PPI inflation was revised lower in May from 1.1% to 0.9%. May Core PPI inflation was cut from 2.8% to 2.6%. The decline and revision lower in Core PPI is what the US Federal Reserve wants to see.
Inverse correlation with the DXY
Another crucial factor driving Bitcoin’s rise is the recent drop in the US Dollar Index (DXY) below 100.00, a level not seen in 15 months. This development has led to renewed interest in risk assets such as Bitcoin as a hedge against a weakening dollar.
The inverse correlation between the DXY and Bitcoin has historically played an important role in the cryptocurrency’s price movements, and this recent drop in the DXY has acted as yet another bullish catalyst.
Ripple’s partial victory
The ongoing legal battle between Ripple Labs and the U.S. Securities and Exchange Commission (SEC) is likely to have boosted Bitcoin’s price. Ripple’s partial victory in the case has sparked optimism in the crypto community and can be seen as a net positive for Coinbase, which is embroiled in its own legal dispute with the SEC.
Interestingly, Coinbase acts as the exchange partner for all US Bitcoin spot Exchange-Traded Funds (ETFs) currently filed with the SEC. Recently, comments from Chairman Gary Gensler about Coinbase’s involvement in ETF filings have raised concerns about the exchange’s suitability as a partner for market surveillance sharing like Bitcoinist reported.
Eric Balchunas, a Senior ETF Analyst for Bloomberg, expressed concern, suggesting that “SSA could be pointless if this is an issue for him.” With this in mind, Ripple’s victory can also be seen as extremely positive news for the approval of a Bitcoin spot ETF, as Coinbase could benefit from the ruling in its case against the SEC.
At the time of writing, the BTC price dropped to $31,250, up 2.6% in the past 24 hours.
Featured image from iStock, chart from TradingView.com