A closely followed economist is keeping a close watch on inflation data as he believes the next update could determine the direction of the crypto markets.
Alex Kruger tells his 117,100 Twitter followers that inflation is now the number one concern of the Federal Reserve.
According to the economist, the Fed has turned hawkish as it considers multiple rate hikes and the tapering of asset purchases this year to combat rising inflation.
Kruger highlights that if the Fed goes through with its plans, the lack of liquidity in the system could negatively impact the crypto markets.
“Crypto assets are at the furthest end of the risk curve.
Just as they benefited from extraordinarily lax monetary policy, they suffer from unexpectedly tight monetary policy, as money shifts away into safer asset classes.”
With Bitcoin (BTC) down over 40% from its all-time high, Kruger says the latest consumer price index (CPI) data, an instrument to measure inflation, could dictate the next phase of the crypto market cycle.
“Wednesday we’ll have the US inflation data… If CPI surprises on the downside, expect prices to pop and trend for a while. If CPI surprises on the upside, ‘lights out,’ BTC is going into the $30,000. Tradfi [traditional finance] will make sure of it.
If the number comes in line with the forecasts, at 7.1%, hard to tell. Would make sense for bears to attempt to break the lows, fake breakout, and a rabid rally to ensue given the chart.
That said, crypto will follow Bitcoin, and Bitcoin will follow stocks.”
Kruger also says that he believes the Fed is prepared to see market drawdowns just to keep inflation under control.
“The Fed is saying it is willing to prick the bubble. The bear case is they do. The bull case is inflation starts to consistently surprise on the low side, and they don’t need to.
Inflation is everything.”
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