Bitcoin (BTC), which is based in New York, could fall to $30,000 if U.S. inflation data released Wednesday comes out higher than expected, warns Alex Kruger of Aike Capital.
Markets expect the closely-followed consumer prices index (CPI), to increase 7.1% year-over-year and 0.4% monthly. This is why officials at the U.S. Federal Reserve are aiming for a quicker normalization of their monetary policies than they had anticipated.
U.S. headline inflation Source: Bureau of Labor Statistics. Bloomberg
Their preparation is further supported by a normalizing labor force, which includes a rise in incomes and falling unemployment claims according to data released Jan. 7.
Kruger tweeted on Sunday that “Crypto assets were at the farthest end of risk curve” and that, since they had benefited greatly from Fed’s “extraordinarily loose monetary policy,” it would suffice to state that they would be affected if an “unexpectedly tighter policy shifts money into more secure asset classes.
“Bitcoin trades as a proxy to liquidity conditions and is now a macro-asset. Macro players are now selling bitcoin to reduce liquidity.
What is the first interest rate increase in March 2022?
Since March 2020, the Fed has been purchasing $80 billion in government bonds and $40 million worth of mortgage-backed security every month. The U.S. central banks has maintained its benchmark interest rates at zero, making it cheaper to lend to businesses and individuals.
BTC/USD vs. Fed Balance Sheet. Source: TradingView
However, inflation is a collateral consequence of loose monetary policies. It reached 6.8% in November 2021, the highest level in nearly four decades.
The Fed, once claiming that rising consumer prices were “transitory,” now expects no rate increases in 2022. Instead, it is discussing three hikes along with their balance sheet normalization.
CNBC’s Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, said that “it’s more dramatic then what we expected and the Fed’s pivot towards a more hawkish position has been the surprise.”
“Most market participants expected higher rates and less accommodative policy monetary policy to be implemented, but the fed funds implied a 90% chance that there would be a hike in March. However, it was only 63% when you looked at the fed funds on New Years Eve.
Mini bear market?
Mike McGlone, a senior commodity strategist at Bloomberg Intelligence called $40,000 an important support level for the Bitcoin market. He also predicted that cryptocurrency would emerge from its bearish phase once the world goes digital.
Daily price chart for BTC/USD with $40K-level history as support Source: TradingView
This statement came as Bitcoin’s decline from Nov. 8’s record high of $69,000 was now more than 40%. Eric Ervin, chief executive of Blockforce Capital, stated that the drop has primarily been a washout for recent investors and left the market with long-term owners.
Bloomberg could see a mini bear market, the executive said. He also stated that such corrections are “completely acceptable” for crypto investors.
Related: Bitcoin’s classic bounce at $40.7K, as the BTC price completes its circle starting January 2021
Kruger noted that Bitcoin had already fallen too much from its record highs and is now technically oversold. Markets could see the BTC price trending if the CPI reading surprises them.
Kruger stated that the US Inflation Data will be available on Wednesday.
“Think about prices dropping between 41k and 44k, with an upwards bias due to the strong rejection of lows.” You should do your research before making any investment or trading decision.