At the time of writing, Bitcoin price is around $69,000. It seems that the cops will struggle to keep the price consistently above $69,000, the all-time high of 2021.
An important reason for this appears to be the current macroeconomic situation. Inflation in the US was higher than expected in January and February, prompting the US Federal Reserve to further postpone the first interest rate cuts.
In theory, this development puts pressure on the market and that is why next Wednesday could be crucial for the Bitcoin price.
Why is next Wednesday crucial for Bitcoin price?
Interest rate cuts are good for risk assets like Bitcoin and in order to lower rates, the US Federal Reserve wants to see evidence that the high inflation numbers in January and February are a temporary phenomenon.
Next Wednesday we get the US Consumer Price Index (CPI) for March. These inflation numbers may be the most important since the US Federal Reserve began raising interest rates in March 2022.
If inflation turns out to be higher than expected (and hoped) again, there may be not three, but two, or even fewer rate cuts in 2024. In theory, this could have catastrophic consequences for the markets, at least in the short term.
If inflation turns out to be lower than expected, that will be fantastic news and we will likely see the first rate cut of this cycle in June.
According to the market, there is currently a 53.2 percent chance of a first rate cut during the meeting on June 12, 2024. Next Wednesday’s inflation numbers could significantly shake up these percentages and cause a lot of volatility.
Is High Inflation Really Disastrous for Bitcoin?
In the longer term, the question remains to what extent it would be disastrous for the Bitcoin price if inflation were to be high again next week. This means that the US Federal Reserve will keep interest rates at this elevated level for a longer period of time.
The “problem” is that the US government is struggling with huge debts, much of which it will need to refinance over the next 12 months. Trillions of dollars in debt will rise from the low interest rates of the last decade to the relatively high interest rates the central bank is currently using.
If the Federal Reserve does not lower interest rates, the US government’s annual interest costs will rise dramatically. This means that annual budget deficits are growing, debts are rising and cover interest costs are also rising again. In theory, this could lead to a negative debt spiral that could be very difficult for the US dollar.
In other words, if interest rates remain at these high levels for too long, the value of the US dollar could be negatively affected. This allows investors to switch to alternatives that the government cannot print, such as Bitcoin, gold, stocks, real estate, art and other collectibles.
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