Bitcoin Breakout Halts as US Inflation Data Looms
Key Highlight
- Markus Thielen of 10x Research believes that Bitcoin’s failed breakthrough likely resulted from temporary uneasiness ahead of the US CPI announcement rather than an actual negative trend reversal.
- Bitcoin Breakout Halts Ahead of US CPI Announcement: 10x Research Insight. Markets have reduced their expectations of Fed rate cuts ahead of the CPI report.
- A modest inflation reading might put the June rate cut back on the table, potentially causing upward volatility in risky assets, including cryptocurrency.
In the 24 hours leading up to the publication of U.S. inflation statistics, which may determine when the Federal Reserve (Fed) starts to reduce interest rates, Bitcoin (BTC) experienced a 3% drop, invalidating a bullish breakout.
The top cryptocurrency by market value fell back into a consolidation triangle, evident in trendlines that connect the highs of March 15 and March 27 and the lows of March 20 and April 3.
A bullish breakthrough from this symmetrical triangle consolidation occurred early this week, paving the way for a rally to $80,000. After failed breakouts, short-term traders often close or reverse their bullish bets, anticipating a more significant price collapse.
However, 10x Research founder Markus Thielen advises investors not to misinterpret Bitcoin’s bear market failure.
Thielen noted that the Nasdaq, a tech-heavy index on Wall Street, rose on Tuesday, offering positive signals for riskier assets like bitcoin. In other words, the bitcoin decline might not last long.
The cryptocurrency closely follows changes in both the Nasdaq and the ratio of the Nasdaq to the S&P 500. The Bureau of Labor Statistics intends to release the CPI statistics for March 2024 on Wednesday at 08:30 ET (12:30 UTC).
Analysts surveyed by the Wall Street Journal generally agree that the consumer price index, which measures the cost of living, has increased by 3.5% since March 2023, outpacing the 3.2% annual inflation rate in February. They anticipate that the monthly pace will slow from February’s 0.4% rate to 0.3%.
Similarly, they predict that core inflation, which excludes the volatile food and energy component, decreased to 0.3% in March from 0.4% in February.
This would represent a year-over-year decrease from 3.8% to 3.7%. The job market and a strong economy have led markets to adjust their expectations of when the Fed will first lower interest rates this year and by how much.
As of Monday, Fed funds futures reflected expectations for a rate cut this year of 60 basis points, a significant decline from early January’s 150 basis points.
Before Friday’s positive nonfarm payroll data, the likelihood of the first 25 basis point rate cut in June was close to 60%, but it has now dropped to under 50%.
Therefore, bitcoin might not see much downward volatility if the CPI announcement is hotter than expected. Conversely, a soft print might put the June rate cut back on the table and rekindle positive sentiment in the top cryptocurrency.
According to CME pricing, the first rate cut, previously expected in June, now has just a 50% likelihood, showing that the market has already adjusted its expectations.
In other words, “There may be some volatility, but it appears that the market is already more bearish on the inflation outlook,” Noelle Acheson observed in the Tuesday issue of her popular newsletter, Crypto Is Macro Now.
“A sudden decline in inflation would likely have a more significant impact on assets, including cryptocurrency, as it would suggest that perhaps the Fed does indeed have a reason to cut rates in June,” Acheson added.
