Fresh U.S. inflation data briefly lifted sentiment across financial markets this week, but the optimism quickly faded in the cryptocurrency market. Although inflation came in below economists’ expectations, investors remained focused on the Federal Reserve’s next policy moves and ongoing geopolitical tensions, keeping demand for Bitcoin and other digital assets subdued.
The latest data showed annual Consumer Price Index inflation slowed to 3.5%, below expectations of 3.8%, while Core Producer Price Index inflation rose 0.2%, also coming in below forecasts of 0.3%. Even so, traders remained cautious as uncertainty over interest rates, market liquidity and global developments continued to weigh on risk appetite.
Soft inflation data generally help the risk assets because it means that the expectations regarding possible Fed rate cuts become more favorable. Nevertheless, the market still stays cautious, and there is an expectation that interest rates might remain high for a while.
Increased cost of borrowing decreases liquidity in the system, and thus reduces the demand for risky assets including cryptocurrencies.
Also, conflicts in the Middle East region persist and affect the market negatively. In spite of the signals about cooling of inflation numbers, many market participants stay cautious due to geopolitical tensions and increased interest rates expectations.
Bitcoin traded around $ $64,105.94 during Friday’s session, showing little reaction despite softer-than-expected U.S. inflation data. Bitcoin exchange-traded funds (ETFs) also showed that investors were still being careful.
After the inflation report, U.S. spot Bitcoin ETFs recorded net inflows only on July 14 and July 15, bringing in just over $100 million. According to data from SoSoValue, U.S. spot Bitcoin ETFs ended the week with around $75.67 million in flow. Although money flowed into the funds, the amount was relatively small, suggesting that lower inflation alone was not enough to boost investor confidence.
The cautious mood was also seen in the Crypto Fear and Greed Index, which as of writing rose to around 34 but remained in the “Fear” zone as per CoinMarketCap. This shows that many investors are still hesitant to take on more risk despite signs that inflation is easing.
Former Binance CEO Changpeng Zhao also commented on inflation this week, writing on X, “AI is great, but it does not protect you against inflation. Bitcoin does.”
Meanwhile, Polymarket traders assign a 94% probability that the Federal Reserve will keep interest rates unchanged at its July meeting. Even so, inflation expectations remain a key focus for investors, with Bitcoin continuing to track broader macroeconomic developments alongside demand for spot exchange-traded funds.
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