Bitcoin near $65,000 as Fed inflation gauge posts first decline since 2020

The Fed's preferred inflation gauge fell for the first time in six years, a shift that could reshape the rate outlook for Bitcoin.

Bitcoin traded near $64,800 on Thursday after the Federal Reserve's preferred inflation gauge posted its first monthly decline since 2020, reinforcing the case for a prolonged rate pause.

"Lower oil prices after the temporary US-Iran truce drove the headline decline, but core inflation remains well above target," analysts at 10x Research said in a note. "The question for Bitcoin is whether this is the start of a disinflation trend or a one-off driven by geopolitics."

The personal consumption expenditures price index fell 0.1% month over month in June, the Bureau of Economic Analysis reported Thursday, the first decline since the pandemic-era deflation of 2020. The annual rate slowed to 3.7% from 4.1% in May, while the core measure — which strips out food and energy — rose 0.1% on the month, bringing its yearly rate to 3.3% from 3.4%. Bitcoin changed hands at $64,800 as of 14:00 UTC, up 0.8% over the past 24 hours, according to CoinGecko data, with trading volume at $28 billion versus a seven-day average of $32 billion.

The data follows the Federal Reserve's decision Wednesday to hold its benchmark rate at 3.50%-3.75% for a sixth consecutive meeting, a call that drew three dissents from officials favoring a hike. Chair Kevin Warsh said during his post-meeting press conference that "there is no soft inflation target," indicating the central bank remains vigilant. The next Fed meeting is scheduled for September, and CME FedWatch data shows futures pricing a 65% probability of a hold versus 35% odds of a quarter-point increase.

The decline in the PCE index was driven largely by lower oil prices following a temporary truce between the US and Iran, with energy costs falling sharply in June. The sustainability of that trend remains uncertain: WTI crude rebounded 7% on Wednesday after renewed hostilities between the two nations, and was trading near $83.50 a barrel on Thursday.

Bitcoin's market capitalization stood at $1.28 trillion, with its dominance rate at 54.2%, according to CoinGecko. Open interest across Bitcoin futures totaled $38.5 billion, with funding rates near neutral at 0.003%, Coinglass data shows, suggesting leveraged positioning is balanced after weeks of deleveraging in AI-related equities spilled into crypto markets.

The correlation between Bitcoin and the Nasdaq 100 has weakened in recent weeks as the equity index suffered its worst monthly performance in nearly four years, down 9.5% in July. Some analysts see potential for capital rotation out of overheated AI trades into digital assets. "As the AI trade gets repriced, bitcoin may capture some of the value," 10x Research said.

Key support for Bitcoin sits at $62,000, a level tested during Wednesday's selloff, with resistance at $66,500, according to CoinGlass data. A break above that threshold could open a path toward $70,000, though the macro backdrop — sticky inflation, rising Treasury yields and escalating Middle East tensions — presents headwinds.

This article is for informational purposes only and does not constitute investment advice.