Persistent US inflation puts pressure on crypto

In June, the US Federal Reserve, also known as the ‘Fed’, announced that while inflation appeared to be falling, it still remained above its 2% target.

This is bad news for risky assets like cryptocurrencies. These assets are hoping for a rapid decline in inflation, as this would allow the Fed to lower interest rates. Lower interest rates make borrowing cheaper and create more available capital for risky assets.

However, inflation remains high at the moment, which is putting pressure on cryptocurrency prices. Higher inflation means that the Fed is more likely to keep interest rates high or even raise them to curb inflation. This makes borrowing more expensive and reduces investors’ willingness to invest in risky assets like crypto.

What will the Federal Reserve do?

The Federal Reserve decided in June to keep interest rates at 5.25% to 5.50%, despite the current slow decline in inflation. In other words, inflation is not falling fast enough for the Federal Reserve’s liking.

If this situation continues, the Fed could even decide to raise rates again. But let’s not get ahead of ourselves. The Fed is still expected to cut rates later this year.

In addition, the US labor market remains strong. If this trend continues, it will be an additional reason for the Fed to cut interest rates.

The effects on the Bitcoin price

The effects of this macroeconomic turmoil on the crypto sector are significant. For example, Bitcoin (BTC) saw a significant dip below the $58,000 level, which is the first time in two months that the Bitcoin price has fallen so low. At the time of writing, the Bitcoin price is around $57,300.

Jonathan de Wet of ZeroCap is very worried. Bitcoin has been very fragile in recent weeks, and the current dip could send the price into freefall.

“A further decline at this point could lead to a price of $52,000,” he warns.

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