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ETF Inflows Surge as Bitcoin Faces Fed’s Rate Projections

The inflows into ETFs saw a resurgence on Wednesday following unexpectedly low U.S. inflation figures.

10x Research remains bullish on Bitcoin, despite the cryptocurrency facing pressure from the Federal Reserve’s hawkish interest rate forecasts.

On Wednesday, the U.S. central bank held the benchmark interest rate steady at 5.25%-5.5%, as anticipated. However, it reduced its projection for rate cuts this year to just one, down from three in March. This, combined with the softer-than-expected Consumer Price Index (CPI) report earlier in the day, likely unsettled the markets and pushed Bitcoin’s value down.

Bitcoin, the leading cryptocurrency by market capitalization, fell to $67,400 following the Fed’s announcement, reversing its earlier climb to $70,000 after the CPI data release.

Despite this, 10x Research maintains a positive stance on Bitcoin. They are confident that the rally will soon resume. “Our recommendation remains unchanged: stick with the winners (Bitcoin) and avoid others (such as Ethereum). Our previous analysis shows that a lower CPI number tends to lift Bitcoin prices, and we expect this trend to continue,” stated Markus Thielen, founder of 10x Research, in a note to clients on Thursday.

In May, the U.S. consumer price inflation rate was flat, missing the consensus estimate for a 0.1% increase and down from April’s 0.3%. The year-on-year rate held steady at 3.3%, aligning with estimates and slightly down from April’s 3.4%.

According to Thielen, the slowdown in inflation historically attracts substantial inflows into U.S.-listed spot Bitcoin exchange-traded funds (ETFs). Provisional data from Farside Investors revealed that ETFs garnered $100 million on Wednesday, ending a two-day outflow streak.

Thielen noted that ETF inflows had dried up after their debut on January 11 due to higher-than-expected December CPI figures, which weakened the case for Fed rate cuts. The inflows resumed in February, driving Bitcoin prices higher. “ETF flows turned positive at the end of January but only began to accelerate slightly before the CPI data release on February 13. However, when inflation increased to 3.2% on March 12, Bitcoin ETF inflows halted as the market adjusted its expectations for rate cuts,” Thielen observed at the end of May.

Thielen anticipates the Fed will signal more rate cuts later this year, given that inflation has already peaked.

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Disclaimer: Not Investment Advice

it’s crucial to understand that the information provided here is not to be construed as investment advice. The crypto market is dynamic and highly speculative, and decisions should be made based on thorough personal research and consideration of individual risk tolerance. Always consult with financial professionals and conduct your own due diligence before making any investment decisions. The intention of this exploration is to present insights and trends, not to provide specific investment recommendations.

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