Bitcoin is nursing losses on Friday despite hopes of more inflation-boosting U.S. stimulus to come.

On Friday, President Joe Biden is set to release his first full budget, seeking $6 trillion in federal spending for the fiscal year 2022 and $8.2 trillion by 2021, The New York Times reports.

The proposal shows the Biden administration remains undeterred by recent inflation fears and is unlikely to close the liquidity tap anytime soon, having already pumped trillions of dollars into the system to counter the economic effects of the coronavirus pandemic since March 2020.

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That’s potentially a bullish development for bitcoin, which is widely touted as digital gold. However, the leading cryptocurrency is changing hands near $35,800 at press time, representing a 7% drop on the day. The decline comes a day after buyers failed to establish a foothold above the $40,000 mark.

However, the prospect of more liquidity is pushing stocks higher. The pan-European Stoxx 600 index is trading 0.43% higher at new record highs above 445 points, according to Investing.com. Futures tied to the S&P 500 are also hinting at a positive start to trading on Friday with a 0.5% gain.

Bitcoin’s adverse reaction to talk of more stimulus appears confounding, given it rallied from $5,000 to over $60,000 in the past 12 months, alongside a steady rise in the U.S. 10-year breakeven rate, the bond market’s forecast of long-term price pressures.

The cryptocurrency has received validation as an inflation hedge from Wall Street bigwigs and several listed companies. “Personally, I’d rather have bitcoin than a bond,” in an inflationary scenario, Bridgewater Associates founder Ray Dalio said during an hour-long conversation with CoinDesk Chief Content Officer Michael J. Casey earlier this week.

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Increasing concerns about the environmental impact of cryptocurrency mining and China’s recent regulatory announcements could be keeping buyers at bay.

“Retail appears to be slowing down while regulatory concerns and ESG FUD [fear, uncertainty and doubt] from China has taken center stage,” Matthew Dibb, co-founder, and COO of Stack Funds, said. “Many market participants are covering positions in light of anticipated news that (might) come to light.” ESG stands for “environmental, social and corporate governance,” a term used to refer to companies’ sustainability and impact on society.

Bitcoin fell sharply from $58,000 to nearly $30,000 earlier this month after Tesla suspended vehicle purchases with bitcoin, citing environmental concerns.

“Environmental concerns will get bigger with time. This will represent a major long-term headwind for bitcoin, and help push dominance down,” trader and analyst Alex Kruger tweeted.

Also read: Ark’s Cathie Wood Blames Crypto Crash on ‘ESG Movement’ 

Additionally, fears that the Federal Reserve may raise the interest rate to counter inflation could be keeping the cryptocurrency under pressure. That’s because rate hikes dilute the appeal of the store-of-value assets like bitcoin.

According to Bloomberg, rates traders have boosted bets that the Fed will raise borrowing costs next year, much earlier than policymakers have indicated.

“The Fed’s broad support of the economy since the onset of the pandemic has provided support for higher asset prices including stocks and cryptocurrencies,” Ariel Zetlin-Jones, associate professor of economics at Carnegie Mellon University’s Tepper School of Business, told CoinDesk in an email earlier this month. “Ultimately, the removal of this support is likely to provide new headwinds for asset price growth.”

The rate hike fears may amplify, if the core personal consumption expenditure (core PCE) – the Fed’s preferred measure of inflation – blows past expectations. That could lead to a deeper drop in bitcoin. The April data is scheduled for release at 12:30 UTC today.

However, analysts expect the cryptocurrency to see range play in the short term. “From a technical point of view, BTC is in a consolidation phase. We expect that there will be choppy trade between $30,000–40,000 for the next two weeks,” Dibb said.

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