Why is Bitcoin price up today?

Bitcoin (BTC) gained 4.6% on May 3, despite its inability to maintain prices above $62,000. This recovery occurred alongside new macroeconomic data, prompting investors to anticipate a more lenient monetary policy from the United States Federal Reserve (Fed) and a decrease in outflows from U.S. spot Bitcoin exchange-traded funds (ETFs).

Macroeconomic data favors risk-on-assets relative to fixed-income

It is important to note that most of Bitcoin’s price gains on May 3 occurred after 12:30 UTC, which coincided with the announcement from the U.S. Department of Labor that jobless claims remained steady at 208,000 for the week ending April 27. This level is the lowest since mid-February, indicating that employment data continues to demonstrate strength.

The latest labor statistics support the Employment Cost Index, the most comprehensive measure of labor expenses, which rose 4.2% in the first quarter compared to the previous year. This has bolstered investor confidence that the Fed might reduce interest rates by the end of 2024, typically a positive development for risk-prone assets such as cryptocurrencies.

According to the CME Group’s FedWatch Tool, traders now believe there is a 61% chance that the Fed will lower rates to below 5.00% by the Dec. 18 meeting, an increase from 40% the previous week. As yields on fixed-income investments decrease, traders are likely to seek higher returns elsewhere. Therefore, the likelihood increases for stocks, commodities, and alternative investments if this trend continues.

For the first time since November 2022, the U.S. M2 money supply, which includes cash, savings deposits, and short-term bank deposits, turned positive in May. Historically, cryptocurrency markets have begun to outperform traditional financial markets following an increase in M2 supply, as demonstrated by the bull markets in 2014, 2017, and 2021.

While it might be argued that the stock market will primarily benefit from the potential influx of capital shifting from fixed-income securities, Bitcoin’s market capitalization is currently $1.2 trillion, compared to the $6 trillion sitting idle in money market funds. Thus, even a modest 1% allocation to Bitcoin would represent an influx of $60 billion into the cryptocurrency market.

To provide some context, the total net inflows since the U.S. spot ETFs were introduced in January have reached $11.2 billion, according to Farside Investors’ data. Additionally, on May 2, Robert Mitchnick, head of digital assets at BlackRock—the world’s largest asset manager—reportedly stated that sovereign wealth funds and endowments are resuming discussions about Bitcoin.

Stock market growth in check while spot Bitcoin ETF outflows fell

Some investors are beginning to question the sustainability of the meteoric rise in tech companies, especially after Apple announced a record-breaking $110 billion stock buyback program. Essentially, the management chose not to use the cash for launching new product lines or expanding distribution and sales points, suggesting they do not anticipate an increase in demand in the near future.

Additionally, macroeconomic indicators suggesting potential interest rate cuts and a slowdown in stock market growth, combined with a decrease in U.S. spot Bitcoin ETF outflows, might have provided investors with the confidence needed to invest. Grayscale GBTC was the only fund that experienced net outflows on May 2, in contrast to the previous day when $564 million was withdrawn from such funds—including those managed by BlackRock, Fidelity, and ARK 21 Shares.

Related: Bitcoin enters ‘a new era’ as whales scoop up over 47K BTC during price pullback

Historically, whenever fear, uncertainty, and doubt (FUD) arise, such as the miners’ death spiral or pressure to sell Bitcoin post-halving, it becomes relatively easy to dampen the enthusiasm of buyers. Over time, as investors realize that the network’s difficulty adjustment recalibrates automatically and that the remaining miners benefit from a potential reduction in hash rate, buyers often return, and the price tends to recover quickly.

While there is no certainty that the rally in Bitcoin on May 3 will be sustained, there are multiple reasons to explain the recent boost in investor confidence.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.