(Kitco News) – Bitcoin (BTC) bulls are firing on all cylinders in early trading on Friday after the August Personal Consumption Expenditures (PCE) index – the Fed’s preferred inflation gauge – showed a month-over-month increase of just 0.1%, below Wall Street forecasts.
This development helped boost expectations that the central bank will announce another 50 basis point interest rate cut at the FOMC meeting in November. The CME FedWatch Tool now puts the odds of such a cut at 54%.
“Today’s lower-than-expected PCE numbers have strengthened the dovish sentiment sparked by last week’s rate cut, fueling optimism that inflation pressures are cooling faster than anticipated,” said Matt Mena, Crypto Research Strategist at 21Shares. “This encouraging backdrop has bolstered BTC, as investors gravitate toward risk assets, anticipating a more accommodative Fed stance going forward.”
“BTC had already anticipated the positive news and front-ran it,” Mena noted. “BTC closed above $65k last night – a level not seen since late July – while the broader crypto market surged, with many altcoins rallying sharply, some even reaching multiples of their Q3 highs.”
“This supportive environment is expected to strengthen risk assets like BTC, enhancing investor confidence and setting the stage for a potential retest of the $68k to $70k range,” he added. “For retail investors, this presents an opportune moment to increase exposure to risk assets, especially given BTC’s historical tendency to rally around this time during halving years.”
“Additionally, global factors such as China’s recent liquidity injections and widespread interest rate cuts are likely to further boost market liquidity, driving an increase in global M2 – a metric that has historically moved closely with BTC’s price,” Mena noted.
With the PCE reading coming in lower than expected, Mena said it “supports the broader bullish momentum in BTC and digital assets, aligning with the Fed’s recent shift towards a more accommodative policy stance.”
“As inflation pressures ease, the narrative of a persistently dovish monetary policy gains traction, fueling demand for risk assets on a global scale,” he said. “While both crypto and U.S. stocks are benefiting, digital assets are significantly outpacing equities; the CoinDesk 20 Index, a large-cap crypto market benchmark, is up nearly 8% this week, compared to less than a 1% gain in the S&P 500. This highlights the growing confidence in BTC and digital assets as investors increasingly seek alternative stores of value and high-yield opportunities amid a favorable macroeconomic backdrop.”
He added that “Today’s PCE reading aligns perfectly with the broader macroeconomic environment shaped by the Fed’s recent rate cut, reinforcing expectations of a continued dovish policy stance.”
“The cooling inflation data bolsters the case for additional rate cuts, fueling renewed demand for risk assets like BTC as investors anticipate a more accommodative Fed,” he noted. “This shift is already evident, with significant capital moving out of money market funds – which currently hold over $6 trillion – and flowing into riskier investments like the Russell 2000 small-cap index, now approaching all-time highs.”
“In the crypto market, the resurgence of risk-on sentiment is clear, as $100M+ market cap memecoins are surging over 100%, underscoring that investor appetite for higher-yielding opportunities is back in full swing,” Mena concluded.
Ian Lee, Head of Operations at Flipster, said that moving forward, “The most significant factors to watch are the continuation of easing monetary policy and the U.S. presidential election on November 5th. One of the main reasons for the current rally is the 50 bps rate cut in the U.S., as well as the PBOC’s rate cut.”
“It is important to monitor how monetary policy evolves and to keep an eye on the November FOMC meeting, where the market is currently pricing in a roughly 50:50 chance of either a 50 bps or 25 bps rate cut,” he added. “Additionally, the U.S. presidential election and the ongoing news surrounding it could have a considerable impact on the market.”
For now, the crypto market is looking strong, and analysts widely expect Bitcoin to continue to rally higher, ultimately hitting a new record high in the not-too-distant future.
“The cryptocurrency market went on to break previous peaks at the end of August, adding over 2.8% in 24 hours to reach 2.29 trillion, a high of almost two months,” said Alex Kuptsikevich, senior market analyst at FxPro. “This rise confirmed the breakdown of the downtrend from the March peak after a higher local low in August. We foresee an easier climb up to previous pivot levels near 2.4 trillion, 4.8% above current prices.”
“Bitcoin, formerly the growth engine of the crypto market due to risk appetite in traditional finance, also made an important technical breakout,” he added. “BTCUSD has consolidated above its 200-day moving average, broken local consolidation resistance, and is above the previous area of highs, having risen to $65.3K at the time of writing. The ability to break above $66K in the coming days would signal a move to all-time highs in the coming weeks.”
Data provided by TradingView shows that bulls initiated a rally near the U.S. markets open that successfully pushed Bitcoin above resistance at $66,000, and if Kuptsikevich is correct in his analysis, a surge above $74,000 is not far off.
BTC/USD Chart by TradingView
“A decrease in the inverted US government bond curve after the Fed rate cut creates conditions for strengthening positions in risk assets, including Bitcoin, Standard Chartered believes,” Kuptsikevich noted. “Positive expectations are supported by an increase in open interest in call options maturing on 27 December with a strike price of $100,000.”
At the time of writing, Bitcoin trades at $66,293, an increase of 5.3% on the 24-hour chart.
