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Bitcoin showed relative price gain momentum on Wednesday following the release of May’s Consumer Price Index (CPI) data, which showed that inflation grew 3.3% year-on-year, slightly lower than the rate of 3.4% registered in April. The crypto market reacted positively to the news as moderating inflation fueled hopes of potential interest rate cuts from the Federal Reserve in the coming months.

Bitcoin has gained around 2.3% in the last hour since the May CPI data was announced, with the broader market of top 20 cryptocurrencies showing positive movements. Ethereum is also up 2.6% in the last hour, according to data from CoinGecko. Notably, the NEAR protocol’s NEAR token has risen the most in the last hour, with a 5.4% increase despite a 13.4% decline last week.

According to data shared by Barron’s and released by the Department of Labor earlier today, the monthly pace of inflation slowed to 0.1% in May, below the 0.3% growth rate seen in April. Core CPI, which excludes volatile energy and food prices, also slowed to an annual rate of 3.5%, the lowest since April 2021.

Ruslan Lienkha, Head of Markets at YouHodler, commented on current market sentiment:

“For Bitcoin, we are seeing a favorable situation in the market right now. The cryptocurrency could overcome the resistance level in the 71k-73k zone and renew all-time highs in the following weeks, driven by optimism in financial markets. This positive sentiment is caused by expectations of upcoming interest rate cuts in the US and Europe, which encourage capital inflows into risky assets.”

Utushkin also noted the growing risk appetite among investors, as evidenced by elevated trading activity in meme stocks and low-rated penny stocks. He noted that crypto investors are shifting from major coins to meme coins, further increasing the market’s risk profile.

“Heightened trading activity with meme stocks like GameStop and other low-rated penny stocks shows a growing appetite for risk,” explains Lienkha, adding that despite the crypto market already being high-risk by default, her analysis indicates that Crypto investors are gradually “shifting from major coins to meme coins, increasing risk.”

Economists and analysts have been closely monitoring the housing component of the CPI, as housing costs have proven to be a persistent source of inflationary pressure. Many expect housing and rent inflation to ease in the coming months, which would help bring overall inflation closer to the Fed’s 2% target.

Despite the encouraging CPI data, Federal Reserve Chairman Jerome Powell is expected to maintain a cautious stance on potential rate cuts during the next FOMC meeting. The central bank is also likely to emphasize the strength of the US economy and the persistence of high inflation as reasons to keep interest rates higher for an extended period.

While investors continue to assess the implications of the latest inflation data and await further guidance from the Federal Reserve, Bitcoin and the broader crypto market remain sensitive to macroeconomic developments. Cautiously optimistic sentiment in the market, tempered by the potential for unexpected negative events, will likely continue to shape the near-term trajectory of these digital assets.

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