Bitcoin climbed to $65,950 on Wednesday morning Asia time, up 4% from the prior day, as cooling inflation data reduced expectations for a Federal Reserve rate hike at the central bank's July meeting. Ethereum followed, rising 5% to $1,873, while broader equity markets also showed strength: the S&P 500 (SPY) rose 0.36% to $751.83, and the Nasdaq (QQQ) gained 1.12% to $719.71 during Tuesday's session.
The move reflects a classic risk-on reversal. Investors had bet on a July rate hike after recent inflation readings remained sticky. Fresh data suggesting inflation is cooling shifted those bets sharply, with fed futures now pricing a near-zero probability of a hike at the next meeting. That relief translated immediately into crypto assets, which had endured selling pressure in the days before the release.
The VIX, a measure of equity volatility, fell 3.85% on the news, signaling reduced anxiety across broader markets. Bitcoin and altcoins tend to underperform when volatility spikes and risk appetite declines. The inverse is true when volatility contracts and equity traders see reduced downside risk.
For context, Bitcoin had come under pressure throughout the past week as traders gamed the probability of a July hike. The asset has historically struggled when real interest rates rise – which a Fed hike would signal – because higher rates reduce the appeal of non-yielding assets like Bitcoin. With that risk now materially lower, traders repositioned back into crypto.
The strength in Ethereum outpaced Bitcoin, a sign that traders are rotating into risk assets with more leverage to economic growth and technology adoption. ETH had underperformed Bitcoin during the period of macro uncertainty. The 5% move in a single day suggests traders had been crowded into bearish bets, and the inflation news forced rapid repositioning.
What happens next depends on whether the Fed actually skips July and when the central bank begins cutting rates. Markets are now fully priced for cuts by September. If inflation remains contained and the Fed confirms that expectation, crypto assets could continue to benefit from the tailwind of falling real interest rates.
