Bitcoin (BTC) edged up 2% on Thursday after the European Central Bank (ECB) signaled that its 10th straight rate hike could potentially be its last.
“Based on its current assessment, the Governing Council is of the view that the key ECB interest rates have reached a level which, if maintained for a sufficiently long period of time, will make a significant contribution to the timely return of inflation to the target.” , the ECB wrote in a letter announcing Thursday that it would raise three key ECB interest rates by 0.25%.
Following the increase, the central bank’s interest rate on its main deposit facility is now 4%, up from -0.5% in June 2022. Analysts were already skeptical whether the ECB would raise interest rates again at its September meeting, with markets predicting a probability of 63% estimated a hike on Thursday morning.
The current rate still does not match inflation, which the European Central Bank estimates will average 5.6% in 2023 and fall to 3.2% in 2024. These are upward revisions to the ECB’s previous forecasts, as energy prices are now forecast to be higher.
“Underlying price pressures remain high even as most indicators have begun to weaken,” the EBC noted. “Financing conditions have continued to tighten and are increasingly dampening demand, which is an important factor in bringing inflation back to target.”
The central bank now expects economic growth in the euro area to contract significantly, slowing to 0.7% this year and 1.0% in 2024.
Rising interest rates from the European Central Bank, the Federal Reserve and other monetary authorities have washed away investment in risky assets – including stocks and cryptocurrencies – since last year. Bitcoin briefly rallied above $30,000 in March 2023 after the Federal Reserve launched its Bank Term Funding Program (BTFP) as a liquidity lifeline for banks at risk of contagion from the collapse of Silicon Valley Bank that month.
While many expect Bitcoin to rally once central banks change course, BitMEX co-founder Arthur Hayes believes Bitcoin can win in both high and low interest rate environments.
In a blog post on Monday, he explained how the peculiar economic situation is causing real bond yields to remain negative despite rising interest rates, potentially making risky assets like Bitcoin more attractive for returns.
“As GDP growth continues to outpace bond yields, inflation will rise from its current ‘low’ levels and remain in the high single digits,” he predicted.
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