After slipping to lows of $15.5K amid FTX’s liquidity crunch, Bitcoin (BTC) gained momentum due to better-than-expected consumer price index (CPI) numbers released by the U.S. Bureau of Labor Statistics.
Crypto and market education platform IncomeSharks tweeted:
“Bitcoin has an easy path back to $20k as Stocks pushing up and positive CPI numbers.”
Bitcoin was up by 3.78% in the last 24 hours to hit $17,281 during intraday trading, according to CoinMarketCap.
The CPI surge was lower than expected because it rose by 0.4% in October, the lowest since January 2022. The U.S. Bureau of Labor Statistics pointed out:
“The all items index increased 7.7 percent for the 12 months ending October, this was the smallest 12-month increase since the period ending January 2022. The all items less food and energy index rose 6.3 percent over the last 12 months … all of these increases were smaller than for the period ending September.”
The lower CPI numbers triggered a bullish reaction in the BTC market because this might mean that the Federal Reserve (Fed) will ease interest rate hikes, which have been detrimental to the crypto ecosystem.
The Fed has been increasing interest rates to the tune of 75 basis points (bps), and this is one of the primary factors hindering a significant leg up for cryptocurrencies.
Despite the positive CPI numbers, the crypto market is still not out of the woods yet as bears continue to bite. Market insight provider Material Indicators explained:
“CPI was lower, Jobless Claims were higher. FireCharts shows the crypto market’s initial reaction to a beat on the forecasted economic numbers. Bear Market Rally is still alive BTC.”
Source: MaterialIndicators
The collapse of FTX, one of the leading crypto exchanges, has also made the digital asset space shaky.
Reportedly, the liquidity issue facing FTX might have emanated from the exchange’s CEO, Sam Bankman-Fried, secretly transferring at least $4 billion to boost its trading arm Alameda Research, with part of the funds being customer deposits.
After a release of key U.S. inflation data published on Thursday, the market saw Bitcoin dropping its price below $19,000 per coin. However, that did not move well-known investor and “Shark Tank” star Kevin O’Leary as he appeared shrugging it off and focusing on the long game.
In his LinkedIn post on Thursday, O’Leary said the crypto opportunity is more like a take-it-or-leave-it offer. “You can’t stop it, you either join the wave or get lost!” he stated on popular social media. He said people have no choice but to get along with cryptocurrency irrespective of the criticism.
“There are people that criticize me on this, but this is one of the reasons I feel so strongly about the future of crypto and NFTs. When you have new technology emerging that can drastically boost our level of productivity and improve how we process transactions globally, you have no choice but to get with it,” O’Leary further elaborated on his conviction about the new asset class.
His comments came after crypto prices plunged to new October lows on Thursday after fresh US data showing global inflation climbed higher – a macro event that further eroded slowing demand for risky assets. Bitcoin dropped as much as 5.1% on Thursday to $18,201, its lowest in about three weeks, while Ether declined as much as 8.2%.
Bitcoin dropped below $19,000 on Thursday as traders anxiously awaited the latest figures of the consumer price index (CPI). The cryptocurrency dropped more sharply after the report came in, indicating a slightly larger-than-expected rise in inflation, despite the aggressive rate hikes the Federal Reserve has introduced to fight rising prices.
In recent years, O’Leary has become a big crypto advocate after buying his first Bitcoin in 2017 – since then, he’s fully embraced the world of blockchain. Despite the ongoing market downturn, the “Shark Tank” star is not ready to call a bottom in the digital asset industry a kind of a major negative occurrence.
In June, O’Leary shared his market outlook and investment strategy during this bear market. He was not sweating the bear market as he believed the winter will end up lifting up the entire sector in the long run.
O’Leary who is a strategic investor at crypto-trading platform WonderFi Technologies Inc., explained that he has been doubling down on digital assets, including Bitcoin and ether, as well as various Web3 projects even though he knows that not every investment will be a winning bet.
O’Leary approaches cryptocurrency like he would any other investment. This means crypto is part of a balanced portfolio with a mix of sectors and specific assets. His portfolio reflects his bullishness for blockchain technologies. He currently holds 32 positions in the crypto space, including Solana and blockchain firm Polygon.
The crypto bear market has slammed valuations of his digital assets, currently, the new asset class makes up 16% of his holdings, down from 20% in March.
Today, the United States Bureau of Labor Statistics (BLS) published the latest inflation figures with the Consumer Price Index (CPI) for all urban consumers growing by 0.4% in September.
Per the data, the CPI increased by 8.2% year-over-year, and going by the 8.3% recorded for August, we can say the Federal Reserve’s efforts to taper down this soaring inflation are not yielding much fruit.
The hot inflation figures sent the market tumbling down upon release with the futures tied to the Dow Jones Industrial Average, S&P 500 Index, and the Nasdaq Composite showing red. This broad market reaction sent shivers down the digital currency ecosystem with Bitcoin comfortably dropping below the $19,000 support zone to as low as $18,319.82.
The initial shock and reaction are fading off as investors are choosing not to be concerned with the impact of soaring inflation and what the impact could mean for the global financial ecosystem. In a surprising turn of events, Bitcoin has been showing some ambitious recovery but this is not after as much as $98 million has been recorded as liquidation since the CPI data were published.
What to Expect in the Future
With inflation remaining the enemy as tagged by the Federal Reserve and other Central Banks around the world, attempts will always be made by monetary policymakers to increase interest rates in an attempt to cushion the soaring cost of goods.
That the inflation figures are not abating can push the Federal Open Market Committee (FOMC) to increase the interest rate beyond the 75 basis points that it has announced four times this year.
The digital currency ecosystem might have shrugged off the volatility as bulls realize that condition interest rate hikes can usher in a recession which in the long run will be beneficial to crypto proponents. The good news is that the Fed officials are not as mindful of recession as they are if inflation refuses to abate in the near term.
At the time of writing, Ethereum was trading at $18,319.82, down 2.985 in the past 24 hours and Binance Coin (BNB) was changing hands at $267.57 after a 1.29% drop
Today, the United States Bureau of Labor Statistics (BLS) published the latest inflation figures with the Consumer Price Index (CPI) for all urban consumers growing by 0.4% in September.
Per the data, the CPI increased by 8.2% year-over-year, and going by the 8.3% recorded for August, we can say the Federal Reserve’s efforts to taper down this soaring inflation are not yielding much fruit.
The hot inflation figures sent the market tumbling down upon release with the futures tied to the Dow Jones Industrial Average, S&P 500 Index, and the Nasdaq Composite showing red. This broad market reaction sent shivers down the digital currency ecosystem with Bitcoin comfortably dropping below the $19,000 support zone to as low as $18,319.82.
The initial shock and reaction are fading off as investors are choosing not to be concerned with the impact of soaring inflation and what the impact could mean for the global financial ecosystem. In a surprising turn of events, Bitcoin has been showing some ambitious recovery but this is not after as much as $98 million has been recorded as liquidation since the CPI data were published.
What to Expect in the Future
With inflation remaining the enemy as tagged by the Federal Reserve and other Central Banks around the world, attempts will always be made by monetary policymakers to increase interest rates in an attempt to cushion the soaring cost of goods.
That the inflation figures are not abating can push the Federal Open Market Committee (FOMC) to increase the interest rate beyond the 75 basis points that it has announced four times this year.
The digital currency ecosystem might have shrugged off the volatility as bulls realize that condition interest rate hikes can usher in a recession which in the long run will be beneficial to crypto proponents. The good news is that the Fed officials are not as mindful of recession as they are if inflation refuses to abate in the near term.
At the time of writing, Ethereum was trading at $18,319.82, down 2.985 in the past 24 hours and Binance Coin (BNB) was changing hands at $267.57 after a 1.29% drop
The crypto market has not yet been able to find the right footing based on tightened macroeconomic factors and Russia’s invasion of Ukraine.
As a result, crowd sentiment toward cryptocurrencies has turned negative. Market insight provider Santiment explained:
“With Bitcoin, Ethereum, and most altcoins ticking down slightly Monday, the crowd’s bearish outlook continues to be evident. Green bars indicate more FUD than usual toward an asset, and red bars indicate more FOMO.”
Source: Santiment
Based on Santiment’s data, fear, uncertainty & doubt (FUD) continue to rock the crypto market, prompting a bearish outlook. Bitcoin (BTC) and Ethereum were down by 1.89% and 2.95% to hit $19,067 and $1,278, respectively, during intraday trading, according to CoinMarketCap.
This trend is being witnessed ahead of the release of the U.S. inflation data scheduled for October 13.
Riyad Carey, a research analyst at Kaiko, pointed out:
“There seems to be some jitters and derisking across all markets as we approach Thursday’s CPI release.”
Carey added:
“Bitcoin is moving closely with equities and I’d expect that to continue as there haven’t been many crypto-specific catalysts in recent weeks. I also expect significant volatility on Thursday, with a move up or down depending on the inflation figure.”
The Bureau of Labor Statistics is set to unveil the consumer price index (CPI) for September, with some economists expecting a 0.3% monthly increase and the annual gain to jump to 8.1%.
The federal reserve (Fed) has been on a roller coaster ride of increasing interest rates to tame runaway inflation, but this has been detrimental to the crypto market.
This trend has prompted concern from various players. For instance, James Butterfill, the head of research at CoinShares, stated:
“We believe there is a building narrative that central banks are beginning to make policy errors. Several of our clients have made the point that they don’t want to buy Bitcoin right now, but as soon as the Fed pivots, they will add to positions.”
The UNCTAD recently pointed out that the Fed should ease interest rate hikes because this could trigger a global recession, Blockchain.News reported.
The United States Bureau of Labor Statistics (BLS) released its inflation data for August, with the Consumer Price Index (CPI) coming in at 8.3% year-on-year (YoY). The market is concerned about rising inflation.
According to the released data, the BLS states that:
“In August, the Consumer Price Index for All Urban Consumers increased 0.1%, seasonally adjusted, and rose 8.3% over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.6% in August (SA); up 6.3% over the year.”
While we can say the inflation was reduced when compared to July, whose CPI reading was 8.5%, it is still well above the maximum target of 4%, which the Federal Reserve is targeting. The implication of these will be far-reaching, as the Feds may use this inflation data as the perfect basis to increase interest rates when the Federal Open Market Committee (FOMC) meets later this month.
That inflation is still sky high is bearish news for the stock and cryptocurrency market, both of which have started responding since the inflation data was released.
Bearish Crypto Response
As expected, investors have started removing money from the cryptocurrency ecosystem, with the combined digital currency market cap slipping below the $1 trillion benchmarks to $993.03 billion, down 7.12% at the time of writing.
The fall is being fueled by the broad-based slump in the price of Bitcoin (BTC), which shed 9.73% over the past 24 hours to $20,212.02, per data from CoinMarketCap. Ethereum (ETH) investors are also not focusing on the upcoming merge of its Beacon Chain with the mainnet as the inflation data overwhelms investor sentiment.
The second-largest cryptocurrency was down 7.67% to $1,591.34, dampening the proposed outlook of the coin as the merge approaches.
The Feds Chairman Jerome Powell has reiterated the readiness to continue hiking interest rates until the 2% target is reached. While this is a seemingly arduous task, making good on its promise can tilt the economy into recession, at which time the Feds will start injecting more money into the market to prop it up.
With more money in circulation at the time, the attractiveness of fiat will be reduced, and crypto may re-establish its lustre as a viable store of value by then.
Data from Cointelegraph Markets Pro and TradingView tracked BTC/USD as it dropped $1,800 after January’s CPI print came in at 7.5%.
Despite being 0.2% higher than expectations, surging inflation failed to have the positive impact on risk assets such as Bitcoin that characterized recent months.
Given the pace of year-on-year price increases, analysts argued, the Federal Reserve may now have more impetus to begin interest rate hikes sooner.
“The Consumer Price Index (CPI) results for the U.S.A. are coming in at 7.5% year-over-year, the expectations were 7.3% year-over-year. $DXY is shooting up and risk-on assets are dropping down like Bitcoin & equities,” Cointelegraph contributor Michaël van de Poppe reacted.
“Likelihood that the FED will start rate hikes in March”
Fellow trader and analyst Scott Melker, known as the “Wolf of All Streets,” was unimpressed by the market.
Funny, I thought Bitcoin was supposed to go up whenever they admit that inflation is bad, but instead people dump it because they are afraid the Fed will actually try to deal with inflation, proving once again that humans are dumb af.
— The Wolf Of All Streets (@scottmelker) February 10, 2022
For economist Lyn Alden, however, it was cash savers w inflation was dealing the real pain.
“Official inflation currently has its biggest gap over short-term interest rates since 1951,” she noted alongside a chart.
“People holding cash in a bank or T-bills over the past year lost over 7% of their purchasing power.”
U.S. CPI vs. effective federal funds rate chart. Source: Lyn Alden/ Twitter
BTC price recovers above $44,000
No sooner had Wall Street trading begun on Thursday, however, did Bitcoin not only reverse its losses but put in a higher high of nearly $45,400.
Related: Bitcoin centers on $44K as BTC price MACD delivers long-awaited bull signal
BTC/USD likewise avoided a retest of recent support, with $42,000 and lower still yet to see a retest.
Previously, Cointelegraph reported on the likely resistance zones now in play for bulls to grapple with in order to continue higher.
“A Bitcoin uptrend in the face of macro uncertainty would be quite powerful. Shifts the narrative from tradfi’s court with BTC being a risk-on asset to purely a story of global adoption and ensuing game theory. Have to wonder how many macro bros have offloaded inventory by now,” analyst William Clemente
The market is reacting negatively to the consumer price index’s report on U.S. inflation.
Bitcoin, Ethereum Dip on Inflation Update
U.S. inflation has hit a 40-year year-on-year high, and crypto assets are sliding in response.
BTC/USD (Source: CoinGecko)
Bitcoin and Ethereum both dipped Thursday immediately after the Labor Department reported that the consumer price index had jumped 7.5% since last year. Price hikes in January contributed to the yearly rise as the cost of all items increased by 0.6%.
The 7.5% figure is the highest U.S. inflation rate the CPI has recorded since 1982. The Dow Jones had estimated that the figure would come in at 7.2%. Markets quickly reacted as the news that the rate had surpassed predictions broke, with futures on the S&P 500 and Nasdaq-100 respectively falling 0.8% and 1.3%.
Bitcoin took a 3.5% dip from around $45,000 to $43,400, while Ethereum fell from around $3,250 to $3,100. Many other lower cap assets, including the alternative Layer 1 coins Solana, Avalanche, and Terra, were harder hit.
The slump across global markets marks a stark contrast to the reaction to the news that U.S. inflation had hit record levels in November, when Bitcoin and Ethereum both rallied to all-time highs on the same day. The difference this time around is that the 7.5% jump indicates that the Federal Reserve is likely to push ahead with significant interest rate hikes in 2022 as planned (when interest rates increase, risk-on assets tend to tumble as the cost of borrowing money jumps).
The Fed first signaled that interest rate hikes would be coming in December, and crypto assets dipped on the news. Markets then dipped when Jerome Powell confirmed the rate increases in January. The market has looked shaky since, with both Bitcoin and Ethereum maintain momentum. They’re respectively down 37.5% and 36.2% from their highs recorded in November.
With interest rate hikes looking increasingly likely this year, crypto believers will be hoping that the market can make a recovery without spilling too much more blood.
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.
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Ethereum’s native token Ether (ETH) plunged sharply hours after the U.S. Federal Reserve released the minutes of their December meeting, showing that they eye a faster timetable for hiking interest rates in 2022.
The minutes showed that the Federal Open Market Committee (FOMC) is in favor of raising short-term rates “sooner or at a faster pace than participants had earlier anticipated.” According to the CME Group, trading in the interest-rate futures market showed a two-thirds possibility of the first increase in March.
Ether turned lower after the minutes were released, dropping by over 13.50% to as low as $3,300. Its plunge mirrored similar downside moves across the crypto market, with Bitcoin (BTC) shedding a little over 9% to nearly $42,100.
Incontestably, ETH/USD returned more losses to its investors than BTC/USD after the Fed’s spook.
It appears traders decided to unwind tokens sitting atop better long-term profits than Bitcoin. For instance, Ether’s returns in the last 12 months — even after the Fed-led drop — came out to be around 175%. On the other hand, Bitcoin’s profits were nearly 15.75% in the same period.
Performance of top fifteen cryptocurrencies. Source: Messari
Similarly, Ethereum’s top rival Solana (SOL) also logged more losses than Bitcoin, dipping by more than 13.75% after the Fed news. Nonetheless, its 12-month profits came out to be more than 7,500%, signaling further extreme corrections if the crypto market’s bias remains skewed toward the bears.
ETH/BTC reaches key rebound level
Ether also plunged against Bitcoin, according to the performance of a widely-traded instrument, ETH/BTC, in the past 24 hours.
The pair dropped by a little over 5% to hit 0.077 BTC. In doing so, it also reached a critical support level near 0.078 BTC that has recently been instrumental in keeping Ether bullish against Bitcoin by limiting the former’s downside bias.
ETH/BTC daily price chart showing its key support level. Source: TradingView
Meanwhile, the 0.078 BTC-support also appeared to be the lower trendline of Ether’s descending triangle. Descending triangles are continuation patterns that typically send the price in the direction of its previous trend after a consolidation period.
That increases Ether’s potential to remain stronger than Bitcoin in the long run, as long as it breaks above the triangle’s upper trendline with convincingly higher volumes.
Too soon to fear the Fed
For months, Fed officials were stuck to the opinion that higher inflation in the U.S. drew its inspiration from supply-chain bottlenecks, with chairman Jerome Powell asserting that it would resolve by itself. But in the latest meeting, he showed less conviction toward the so-called “inflation-is-transitory” narrative.
That is primarily because the U.S. consumer price index (CPI) reached a nearly 40-year high in November 2021, hitting 6.8% year-over-year. Meanwhile, core consumer prices, which exclude energy and food categories, rose to 4.7% from a year earlier; it came to be above the Fed’s preferred inflation target of 2%.
“There’s a real risk now, I believe, that inflation may be more persistent and…the risk of higher inflation becoming entrenched has increased,” said Powell on Dec. 15 last year after concluding the FOMC meeting.
U.S headline inflation over the years. Source: Bloomberg, Bureau of Labor Statistics
Madison Faller, a global strategist at JPMorgan Private Bank, told Bloomberg that investors should not fear the Fed, noting that their three planned rate cuts in 2022 would do little in curbing down consumer prices. Excerpts from her statement:
“Growth and inflation will be decelerating throughout 2022, but nonetheless remain above historic trend levels. We think this will call for a much lower risk of a Fed-induced material market correction.”
As Cointelegraph also covered, fears of persistently higher inflation, which, in turn, tends to devalue cash, have prompted mainstream investors to park their money in the crypto sector.
For instance, Thomas Peterffy, the billionaire founder of brokerage firm Interactive Brokers Group Inc., admitted that he holds 2-3% of his net assets in crypto just in case the fiat money “goes to hell.” Likewise, Bridgewater Associates founder Ray Dalio revealed last year that his investment portfolio contains Bitcoin.
The outlook against inflation promised to offer some respite to Ether, which tends to tail the Bitcoin price movements.
Meanwhile, Sean Farrell and Will McEvoy, strategists at Fundstrat Global, noted that investors should increase their investments across the smart contracts sector to get the most from the next market rebound.
“Given the current macro backdrop, leverage within the Bitcoin market, and recent robustness seen in the altcoin market, we think it’s appropriate to be overweight Ethereum and other smart contract platforms,” they said in a note, adding:
“We probably would not bet the farm near-term on Bitcoin but think there is an opportunity in going long volatility via derivatives strategies.”
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Bitcoin (BTC) may be down over 30% from its record high of $69,000, but it has emerged as one of the best-performing financial assets in 2021. BTC has bested the U.S. benchmark index, the S&P 500, and the gold.
Arcane Research noted in its new report that Bitcoin’s year-to-date (YTD) performance came out to be nearly 73%. In comparison, the S&P 500 index surged 28%, and gold dropped by 7% in the same period, which marks the third year that Bitcoin has outperformed.
Bitcoin vs. S&P 500 vs. Gold in 2021. Source: Arcane Research, TradingView
At the core of Bitcoin’s extremely bullish performance was higher inflation. The U.S. consumer price index (CPI) logged its largest 12-month increase in four decades this November.
“Most economists didn’t see the high inflation coming, as witnessed by the 1-year ahead consumer inflation expectations,” the Arcane report read, adding:
With its 73% gain in the highly inflationary 2021, Bitcoin has proven itself to be an excellent inflation hedge.
Inflation 2021: Actual CPI vs. Expected CPI. Source: BLS, New York Fed
Bitcoin holdings grew among institutional investment vehicles
Loose monetary policies and a sustained fear of higher inflation also prompted mainstream financial houses to launch crypto-enabled investment vehicles for their rich clients in 2021.
Arcane reported an inflow of 140,000 BTC (~$6.56 billion) across spot- and future-based Bitcoin exchange-traded funds (ETF) and physically-backed exchange-traded products (ETP) this year.
Bitcoin exchange-traded fund holdings. Source: ByteTree, Arcane Research
That prompted more Bitcoin units to get absorbed into investment vehicles, underscoring a greater institutional demand for the cryptocurrency.
In contrast, gold-backed ETFs witnessed an outflow of $8.8 billion in 2021, according to World Gold Council’s report published this December.
Global gold-backed ETF flows. Source: World Gold Council
Volatility behind superior performance?
Nonetheless, Bitcoin’s relatively superior performance in 2021 has included periods of high volatility.
Many analysts believe that extreme price fluctuations keep Bitcoin from becoming an ideal inflation hedge. That includes Leonard Kostovetsky, a finance professor at Boston College, who recalled in his blog post that there had been 13 days in 2021 on which the BTC price has moved over 10% in one direction. Excerpts:
“It seems strange to think that a person who is worried about holding dollars because they lost 7% of their value over the last year would be comfortable holding Bitcoin which could (and often does) lose that much value in a single day.”
Arcane too recognized Bitcoin for being more volatile than the S&P 500 in 2021, noting that the cryptocurrency “behaved like a risk-on asset” by merely amplifying the most significant stock market movements.
The researcher cited VIX — a measure of the expectation of volatility based on S&P 500 index options — to exemplify the relationship between Bitcoin and stock markets. It noted that the BTC price fell hard whenever the VIX readings spiked in recent times, underscoring that institutional traders viewed Bitcoin as a risk-on asset.
Bitcoin vs. VIX. Source: Arcane Research, TradingView
As a result, Bitcoin’s potential to fall harder in the wake of a stock market correction also became higher. Arcane too noted that a bearish 2022 for the S&P 500 may end up wiping a big portion of Bitcoin’s gains.
“Therefore, be aware of stock market headwinds in the next year and their possible implications for bitcoin’s short-term price trajectory,” it added.
Related: Arcane Research releases its crypto predictions for 2022
But hedge fund manager Chris Brown went far in predicting an all-and-all Bitcoin doom in 2022. The Aristides Capital’s managing member stated that cryptocurrencies could face massive selloffs ahead as the U.S. Federal Reserve ends its $120 billion a month asset purchasing program followed by three rate hikes next year.
BTC/USD weekly price chart versus Federal Reserve balance sheet. Source: TradingView
“If the Fed really does hike rates enough to make money considerably less loose, or if markets believe they will, you are going to see certain areas of speculation come to a screeching halt,” Brown said, adding:
The prime example of such asset speculation is cryptocurrency; here lies $2.64 trillion of ‘wealth’ that is backed by nothing and generates no cash flows.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
