Bitcoin approaches $70,000 once more amid temporary inflation relief ahead of federal reserve meeting

On Wednesday, Bitcoin's price surged to nearly $70,000 as investors welcomed May's inflation data, which surpassed expectations, sparking optimism about a potential rate cut by the U.S. Federal Reserve.

The U.S. Consumer Price Index (CPI) figures released on Wednesday indicated no change in prices month-over-month, with an annual increase of 3.3%, a slower rate compared to the previous 12 months.

The Federal Reserve is scheduled to announce its rate decision on Wednesday. While no rate cuts are anticipated, the recent inflation report provides greater flexibility for future rate adjustments when the Fed decides to lower them.

Why is inflation or the federal reserve important to Bitcoin investors?

Bitcoin prices responded to Wednesday's inflation report, reversing their decline since Friday and nearing the $70,000 mark. As of 12:30 p.m. ET, bitcoin was trading at $69,359.30.

With inflation showing a downward trend, the Federal Reserve, which relies on data, now has more incentive to consider reducing interest rates. The Fed's efforts to raise rates to combat inflation have led to the highest levels in 23 years.

Why is this significant for bitcoin investors?

While bitcoin is often seen as a safe haven asset, it continues to behave largely as a risk asset, as evidenced by its price increase following the release of milder inflation figures.

Bond yields have also surged alongside higher rates, making bonds—a relatively lower-risk asset—more appealing to investors due to their higher returns. Lower interest rates resulting from a Fed rate cut would likely reduce bond yields, potentially prompting investors to turn to riskier assets like cryptocurrencies in pursuit of greater returns.

Might Bitcoin ETF investors change their direction?

Leading up to Wednesday's inflation data and the subsequent Fed meeting, bitcoin investors grew anxious. Not only did the cryptocurrency's price slide, but spot bitcoin exchange-traded funds (ETFs) also saw investors withdrawing funds.

According to Farside Investors data, spot bitcoin ETFs recorded approximately $265 million in outflows during the first two days of this week.

This marked a notable shift in trend, as spot bitcoin ETFs had seen net inflows for the previous 20 consecutive days. However, much of the earlier inflows were driven by arbitrage opportunities identified by traders between the ETFs and the futures market, as noted by BitMEX Research.

Ahead of the Federal Reserve's upcoming decision on interest rates scheduled for later on Wednesday, the CME FedWatch Tool indicated a 99.9% likelihood that rates would remain unchanged.