CoinShares: The Fed faces the dual dilemma of persistent inflation and economic weakness, which is good for Bitcoin in the long run

PANews, May 13, CoinShares published a report last weekend saying that this year, when the spot Bitcoin ETF was approved in the United States in January, the factor affecting the price of Bitcoin is no longer the interest rate narrative. Since then, as ETF flows have declined, Bitcoin’s price has regained alignment with market expectations for interest rates. The Fed faces a challenging dilemma: It needs to control persistent inflation while also supporting the weakening U.S. economy. This predicament could be good for Bitcoin in the long run.

In the past week, market trends have been mainly affected by macroeconomic factors. The research noted that consistency with June interest rate expectations has increased and is similar to the trend in 2023. GDP growth was lower than expected last week, while core PCE inflation data was much higher than expected, exacerbating concerns about stagflation. Stagnant growth and high price payments in the services sector indicate intense price pressures. Bitcoin prices fell sharply after the Federal Reserve maintained its hawkish stance at Wednesday's meeting. However, the quantitative tightening (QT) announced by the Federal Reserve in June was reduced to US$25 billion, exceeding market expectations and showing its policy difficulties. Markets expect the Federal Reserve to cut interest rates later this year in response to a weak job market.

The recent price decline has led to outflows from U.S. spot Bitcoin ETFs, with the average investment amount in U.S. spot Bitcoin ETFs being approximately $62,000. Markets appear to be overreacting to short-term economic data and ignoring longer-term weakness in growth and government debt issues. Given that the supply of Bitcoin is fixed, when the Fed cuts interest rates (which may be larger and later than expected), it will support Bitcoin prices. The market needs to pay attention to long-term trends and avoid being confused by short-term fluctuations.