Bitcoin Gains as European Central Bank Signals Relenting Rate Hikes

The Thursday, September 14 announcement by the European Central Bank (ECB) optimism in the current interest rate checking inflation triggered a modest 2% gain in Bitcoin price. The ECB portrayed that it could maintain the current interest rate despite being the tenth consecutive hike.

The pronouncement saw the interest rates hit new levels that the Governing Council perceives would help contain the inflation to targeted levels if maintained for a longer duration. The Thursday, September 14 announcement comes when European authorities call for a reconsidered approach to resolve the inflationary challenge. 

European Central Bank Mull Ending Rate Hike

The Thursday announcement saw the ECB raise its key interest rates by 0.25%. The increment catapulted the central bank’s rate for the primary deposit facility from -0.5% to in mid last year to 4%.

The increment was surprising as analysts expressed skepticism that the ECB would sustain the hawkish rates during the September meeting. In particular, they assigned 63% odds for a hike to the ECB’s interest rates.

The new rates announced by the ECB hardly match the inflation project to an average of 5.6% this year. It would simmer to 3.2% next year, marking an upward revision. The adjustment from the prior projections arises from the need to accommodate pathways for a hike in energy prices.

ECB observed that the prevailing price pressures are exceedingly high despite the optimism that most indicators project they are easing. The ECB economist argues that further tightening financing conditions would increasingly erode demand. Its accomplishment is considered critical in retracing inflation to the targeted levels. 

The ECB economists project the economic growth in the block to contract substantially. In particular, they consider the prolonged inflationary period as likely to restrict economic growth to 0.07%. However, the euro area is projected to realize a rebound to 1.0% in 2024.

Central Banks’ Hawkish Stance Triggers Mixed Investment

Economists globally support the hawkish stance adopted by monetary authorities, including the Federal Reserve and ECB, strangling finance that would otherwise fund investments in risk assets. The worst-hit assets are cryptocurrencies and stocks since the last quarter of 2022. 

Bitcoin has not realized immunity from the purge delivered to risky investments by the consecutive interest rates. A review of Bitcoin’sBitcoin’s performance reveals it suffered during the prolonged crypto winter till March 2023, when it realized a rebound.

The rebound witnessed in March saw Bitcoin exchange hands above $30000 following the Federal Reserve unveiling of the Bank Term Funding Program (BTFP). The initiative constituted a much-needed lifeline for American banks to shield them from the contagion that hit Silicon Valley Bank, Silvergate, and Signature Bank.

Crypto Optimistic in Break From Consecutive Interest Hike

The crypto community welcomes the signals of ending the consecutive hike trend. Many expect Bitcoin to regain as the central banks relent their hawkish stance for dovish policies. BitMex’s Arthur Hayes is optimistic that Bitcoin can win regardless of the interest rate regime.  

Hayes’ pronouncement captured in a Monday, September 11 post that the prevailing economic contraction leaves the real bond yields negative, though the interest rates are increasing. The situation favors risk assets, a reason Bitcoin is becoming attractive for investors pursuing yield.

 Hayes warns that inflation could double digits, particularly when GDP growth outpaces the bond yields. The inflation shift from the current depressed state would leave it sticky, hence favorable for Bitcoin and other crypto assets.