Bitcoin (BTC) price reclaimed $36,000 heading into the New York session Wednesday as investors awaited fresh data on inflation in May and El Salvador approved a bill that made cryptocurrencies a legal tender in the country.
The benchmark cryptocurrency surged 9.86% to an intraday high of $36,696, wiping off a portion of the losses it incurred in the previous session. In retrospect, the BTC/USD exchange rate had fallen to almost $31,000 on Tuesday over fears that the pair has entered a 2018-like bearish phase after topping out near $65,000 in mid-April.
#Bitcoin on the charts: Key levels to watch come in at $30,000 and $47,000. Below $30,000 opens possibility for deeper setback towards the previous record high from late 2017 around $20,000. Back above $47,000 will put the focus back on the current record high. $BTCUSD #crypto pic.twitter.com/X6d23G0FiH— LMAX Group (@LMAX) May 25, 2021
On the other hand, bulls kept projecting Bitcoin as a primary tool against inflation, with Mike McGlone, the senior commodity strategist at Bloomberg Intelligence, noting that the cryptocurrency's possibility to reach $40,000 in the coming sessions is higher than reaching $20,000. He said:
Capitulation? $40,000 Appears More Likely Than $20,000 — The June 8 Bitcoin plunge and revisit of lower-end-range support around $30,000 had many of the earmarks of extreme bearish sentiment typical of more enduring bull-market bottoms."
The great Central American pump
Bitcoin received further upside boost from El Salvador. The Central American country, under the leadership of its president Nayib Bukele, became the first nation to approve Bitcoin as its legal tender.
The law will take effect in 90 days, enabling Salvadorans to use Bitcoin for paying and accepting goods and services. They will also be able to pay taxes in cryptocurrency.
Bukele also announced that El Salvador would use the country's "volcano energy" to mine Bitcoin. The announcement served as a response to Tesla CEO Elon Musk's Bitcoin payment suspension announcement over environmental concerns. Musk's decision led to a severe FUD among investors that caused a massive crash in the cryptocurrency market.
Elon never anticipated his #Bitcoin energy FUD would be met with the Volcano energy hammer.— Vijay Boyapati (@real_vijay) June 9, 2021
Key inflation data ahead
Bitcoin's latest move uphill also emerged out of technical supports. At around $31,000, traders expressed a short-term bullish conviction because of the cryptocurrency's ability to hold $30,000 as support in the recent history.
For instance, on May 19, Bitcoin jumped by more than 40% overnight after testing $30,000 as a price floor.
Yuriy Mazur, head of the data analysis department at CEX.IO Broker, noted that BTC/USD could hold levels around $30,000 as support despite the latest setback. The senior analyst cited higher inflation behind his bullish analogy. He told Cointelegraph:
"Given the current pullback in Bitcoin, the fact that analysts expect the U.S. CPI to rise to 4.7% may be a serious factor driving BTC/USD higher [...] Eventually, Bitcoin could be a big winner in the event inflation continues to rise, which certainly looks to be the case."
The statements appeared despite concerns that the Federal Reserve would eventually hike interest rates to bring inflation to its preferred target of 2%. U.S. Treasury Secretary Janet Yellen further clarified in her interview with Bloomberg that higher interest rates would be a plus.
A higher rate tends to sap investors' appetite for hedging assets like Bitcoin and gold.
But, according to Yuriy, a rate hike would not hurt Bitcoin's demand among investors, noting that expensive lending would reverse gains across the U.S. stock market indexes. He added:
"If the Fed takes a hawkish stance on rate hikes, it will slow down the inflation but will put considerable risks of a collapse on the stock market as loans will quickly rise in value for the business. In this scenario, Bitcoin could also attract more funds as a virtually last-resort store of value in the times of high economic risks as more investors would be looking for a safe-haven to put their money in."
The U.S. CPI data will be released on Thursday.