Bitcoin soars past $66,000 as August inflation rate comes in lower-than-expected

Bitcoin peaked around $66,500 on Friday just before noon, before paring gains and holding around $66,000. The leading cryptocurrency has not reached such a high since late July. Ethereum also soared on Friday morning, jumping about 2% from $2,644 to $2,699 within forty-five minutes. 

The current crypto upswing, which still leaves Bitcoin a ways from its all-time high of $72,000, appears to be based on a variety of factors.  

This morning, the U.S. Bureau of Economic Analysis released the Personal Consumption Expenditures Price Index for August 2024. The index, or PCE, is a key gauge of inflation in the U.S. economy. The report showed that inflation has slowed to 2.2% from August last year, a sharp decline compared to 2.5% reported in July and the lowest since 2021. 

These numbers appear to validate the Federal Reserve’s recent decision to ease monetary policy, which came last week as Fed Chair Jerome Powell announced interest rate cuts of 50 basis points, a more aggressive cut than some were anticipating. These lower-than-expected inflation rates can increase the appeal of volatile assets like Bitcoin

Inflation rates are not the only factor driving Bitcoin’s run. Thursday saw large inflows in spot Bitcoin ETFs to the tune of $365 million, the highest since July 21, according to SoSoValue data. These ETFs saw inflows across the board, except for Grayscale Bitcoin Trust which has been bleeding investments since January.

ARK Invest’s 21Shares Bitcoin ETF led the charge with net inflows of almost $114 million, followed by BlackRock’s iShares Bitcoin Trust collecting $93 million. Fidelity’s Wise Origin Bitcoin Fund came in third with $74 million and smaller inflows were reported by the rest of the eleven. Grayscale Bitcoin Trust saw outflows of almost $8 million. Since the Securities and Exchange Commission approved these ETFs in January, the sector has raked in $18 billion cumulatively, with highest daily net inflows reported back in March. 

Another factor that could be contributing to Bitcoin’s run are recent changes in China’s economic policy. This week, the People’s Bank of China, or PBOC, said it is considering injecting up to 1 trillion yuan, or $142 billion, into its largest state-owned banks to kickstart the slowing economy. The PBOC also announced a cut in interest rates on loans to commercial banks by 50 basis points. Bitcoin’s price has had strong correlation with the PBOC’s balance sheet and these developments over the past thirty days, according to Coindesk.