While there are crypto-specific factors that can boost Bitcoin, prices are often influenced by macroeconomic and global events. Sometimes, Bitcoin’s price can suddenly leap or plunge without warning. In many cases, this is due to external factors beyond BTC’s control rather than sentiment directly related to the cryptocurrency itself. Here, we’ll explore the data and developments that can significantly influence the digital asset’s performance.

Inflation

After the cost of living in the U.S., U.K., and beyond surged to 40-year highs, inflation has become a closely watched barometer of health in major economies. The Federal Reserve and the Bank of England have long-established targets of 2% for the Consumer Price Index (CPI), but these targets were disrupted by the coronavirus pandemic.

American CPI spiked to 9.1% in June 2022, while in Britain, double-digit highs of 11.1% were recorded in October of that year. Central bankers in both nations have admitted inflation has been challenging to control.

Bitcoin enthusiasts often refer to dollar and pound inflation as an invisible thief eroding spending power. They highlight that BTC has a fixed supply of 21 million coins. For this reason, worse-than-expected CPI readings might seem like good news for Bitcoin’s price, potentially increasing demand for the digital asset. However, the opposite has often been true.

A classic example came in May 2024, when CPI reached 3.4%, lower than analysts expected. In the four hours after the data was released, Bitcoin surged from $62,650 to $65,000, a notable increase of 3.8%. Wall Street also reached record highs, contributing to this rally.

Interest Rates

When Bitcoin launched in January 2009, designed as a protest against the handling of the 2007/08 global financial crisis, the Fed’s interest rate stood at 0.25%, lows not seen in the previous 40 years. Rates stayed low for about six years before climbing slightly as confidence in the recovery grew. Then the coronavirus pandemic occurred, and rates were slashed to 0.25% once again.

Critics say this ushered in an era of free money, lowering the cost of borrowing. Consumers were incentivized to spend, given the tepid returns in savings accounts. As inflation grew, central banks needed to hike interest rates quickly to their current level of 5.5%, a high not seen since 2001.

Unfortunately, high interest rates tend to be bad news for Bitcoin. Appetite dwindles for riskier assets as investors seek healthy returns on their cash by parking it in savings accounts or bonds. There has been growing expectation that the Fed will cut interest rates, which analysts believe could be a catalyst for Bitcoin.

A note by Deutsche Bank strategists in March 2024 stated:

“More investors will likely seek out higher-yielding alternative assets as Treasury returns decline. This flow of capital into nontraditional investment classes like cryptocurrencies could further support an ongoing rally in digital currency prices.”

The Stock Market

At times, there has been a close correlation between Bitcoin and flagship indices such as the S&P 500 or the tech-heavy Nasdaq 100. This correlation could strengthen as exchange-traded funds based on BTC’s spot price become more prevalent in U.S. markets, allowing institutional investors to gain exposure to Bitcoin’s price fluctuations without owning it directly.

Global events can also influence Bitcoin’s value. Unrest in the Middle East has dramatically affected BTC several times in recent months. One such decline occurred in mid-April when Iran launched a drone and missile attack against Israel. Bitcoin plunged from $70,000 to $62,000 in hours but quickly rebounded. Another drop followed when Israel retaliated, amid fears of expanding conflict in the region.

While specific factors can boost Bitcoin — such as excitement around halvings, news of nation-state adoption, or surpassing significant price points — BTC’s fortunes often hinge on the dollar-based economy it was designed to offer an alternative to.

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