As a result of an important monetary policy decision by the European Union, the inflow of bitcoins may increase this week.
The European Central Bank (ECB) is expected to lower interest rates by 0.25% to 4.25% on June 6. This rate cut may boost investors' interest in risk assets such as bitcoin.
Bitfinex derivatives director Jag Kooner said, "The European Central Bank is expected to cut interest rates next week to stimulate economic growth. Lower interest rates usually weaken the euro and increase liquidity, which can boost risk assets including bitcoin."
The expected rate cut occurs during a period of slowing inflation in Europe. Consumer price index (CPI) is expected to reach 2.6% in May, which may be the eighth consecutive month of inflation below 3%.
Bullish prospect: Bitcoin will follow the rise of stocks
James Wo, founder and CEO of Digital Finance Group, said that the potential rate cut may boost traditional stock markets and bring more upward momentum to bitcoin.
Wo told Cointelegraph, "A rate cut will have a positive impact on traditional stocks, as we saw in the rise of European stock markets after the dovish comments by the ECB Council in early May. This may mean that liquidity will shift towards higher risk assets, such as bitcoin, thereby pushing up its price."
The two flagship European stock indexes, STOXX 600 and DAX 40, have risen along with bitcoin prices in May. According to BitStamp data, STOXX 600 has risen more than 3.3% in the past 30 days, and DAX 40 has risen more than 3.8% in the past 30 days, while BTC has risen more than 17.4%.
(BTC, DAX 40, STOXX 600, 1-month chart. Data source: BitStamp)
Another view: Bitcoin as "digital gold" uncoupled from stocks
The historical correlation between bitcoin and traditional stock markets is mixed. However, in an environment of economic stimulus, bitcoin may follow the rise of stocks.
Kooner told Cointelegraph, "Historically, the correlation between bitcoin and stocks has been mixed. Under economic pressure, as investors liquidate assets, bitcoin usually reflects stock trends. In a lower interest rate-driven environment of increased liquidity, bitcoin may benefit along with stocks."
However, despite the lagging performance of the world's largest economy, the US stock market, the price of bitcoin has risen sharply this year. According to BitStamp, the S&P 500 index has risen more than 11.5% year-to-date, while the price of bitcoin has risen 57.6% year-to-date.
(BTC vs S&P 500, year-to-date. Data source: TradingView)
"Despite the decline in the US stock market, BTC remains strong. Whether this is a lag or a relative strength of cryptocurrency remains to be seen," Kooner added.