Bitcoin pulled back Friday after Federal Reserve Chair Kevin Warsh said he still had work to do on inflation, ending a run fueled by more than $3 billion in ETF inflows since August 17. The pullback lowers the odds traders assign to a near-term rate cut, which had been supporting the rally.
Bitcoin dropped more than 3% over 24 hours to trade at $77,379 on Friday afternoon in New York, sliding from a weekly high of $81,281. The pullback came after Federal Reserve Chair Kevin Warsh, in his first major speech as head of the central bank, said he had "more work to do" to fight inflation.
Why Fed comments hit Bitcoin
The cryptocurrency has historically dropped when the Fed signals that inflation remains too high, since that lowers the chance of a rate cut. It typically performs better in a low-interest-rate environment, so Warsh's remarks weighed on the recent rally.
ETF inflows drove the surge
Before the pullback, bitcoin had been climbing on heavy demand for U.S. ETFs. The rally began last week after the U.S. Treasury said it would at least double the size of its liquidity-support buyback operations, a move that weighed on the dollar while benefiting non-yielding assets like bitcoin.
Funds managed by BlackRock, Fidelity and Grayscale logged net positive inflows for nine days in a row, according to Farside Investors data, with last week marking their best week since October, when bitcoin hit a new all-time high. Since August 17, investors have poured over $3 billion into the funds, with BlackRock's iShares Bitcoin Trust receiving the largest share and Morgan Stanley's new Bitcoin Trust also seeing significant inflows.
The debasement trade
Analysts pointed to the so-called debasement trade, in which investors buy an asset to hedge against a currency losing value, as a driver bringing investors back to bitcoin. Those investors view bitcoin, gold and other precious metals as ways to protect against excessive government spending, a concern underscored after total U.S. debt crossed $40 trillion for the first time this month.
Source: Bitcoin Magazine
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