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The recent US Consumer Price Index (CPI) data release has sent ripples across the crypto market. The US consumer price inflation is slower than expected, causing stocks to fall and bond yields to rise. Inflation data heightened concerns that interest rates could stay high longer.

This unexpected inflation data has heightened investors’ concerns that the world’s largest economy could keep rates higher for longer. 

This research report will thoroughly examine Bitcoin’s response to the US inflation data, including an analysis of derivatives data, on-chain indicators, technical charts, and the latest news. The question on everyone’s mind: Is the market leaning bullish or bearish in the wake of this significant economic data?

Read on to delve into the multifaceted relationship between US inflation and Bitcoin and uncover insights that could shape your understanding of this ever-evolving landscape.

US CPI Data Signals The Darkest Hour Before The Dawn 

The US inflation data has always been a significant indicator for traditional financial markets, and its influence on the cryptocurrency market is becoming increasingly apparent. The recent CPI data climbed to 3.2%, lower than the expected 3.3% value. This has led to a divided opinion among market analysts.

The US producer price inflation data came in above market expectations, causing a slip in US stocks and a rise in bond yields. The annual producer inflation accelerated to 0.8% in July, marginally above the 0.7% forecast, leading to a 0.3% gain in the dollar against a basket of six peer currencies. 

This unexpected inflation data has heightened investors’ concerns that the world’s largest economy could keep rates higher for longer, reflecting the policy-sensitive two-year US Treasury rising to 4.89% and the benchmark 10-year note to 4.17%.

Quincy Krosby, chief global strategist for LPL Financial, remarked that the increase in wholesale prices serves as a reminder that the Federal Reserve isn’t ready to declare victory on its campaign to quell inflation.

The Bitcoin Strategy – Kingmaker

With its bold Bitcoin strategy, MicroStrategy is making waves in traditional finance and the crypto market. Announced on August 10, 2020, the firm adopted Bitcoin as its primary treasury reserve asset, leading to a remarkable transformation in its financial performance.

Since this strategic shift, MicroStrategy’s stock (Nasdaq: MSTR) has soared by an impressive 206%, outpacing even Bitcoin itself, which experienced a 145% increase during the same period. This comparison becomes even more striking when viewed against other traditional assets: the S&P 500 rose by 33%, the Nasdaq by 25%, while gold declined by 5%, and silver decreased by 19%.

Highlighting the underlying potential of Bitcoin and the growing confidence of market leaders, Michael Saylor boasts the Bitcoin Strategy.

Currently, MicroStrategy holds 152,800 bitcoins, acquired at a total cost of $4.53 billion. Michael Saylor articulates a vision that sees Bitcoin as a speculative asset and a dependable value store. He emphasizes Bitcoin’s potential for long-term appreciation, positioning it as a more attractive investment asset than holding cash.

This perspective is not isolated to MicroStrategy alone. Blackrock, the world’s largest asset manager and a significant shareholder in MicroStrategy (owning 8.1% of the company), has also expressed interest in crypto. 

MicroStrategy’s commitment to its Bitcoin strategy is unwavering, as evidenced by its plans to purchase more BTC with stock sales of up to $750 million. This approach reflects a growing trend among corporations to consider Bitcoin a hedge against inflation and a means to preserve capital.

Bitcoin Reacts To CPI Data

Bitcoin price action shows bearish candle formations after the release of the US Consumer Price Index (CPI) data. The BTC price is currently testing the 50-day Exponential Moving Average (EMA) in an ongoing consolidation range, forming a Doji candle. However, the BTC price also shows a breakout of a short-term resistance trendline, and the present Doji comes as a retest.

Supporting the bullish reversal, the 1.27% in the last three days fails to increase the trading volume. This reflects a weakness on the bearish side. Therefore, if the BTC price sustains over the 50-day EMA, we can expect a range breakout rally to reach $31,500. 

Derivatives Data: Navigating The Deeper Markets

The funding rate, with a last value of 0.0089212, shows that long-position traders are in control and are willing to pay short traders. The Open Interest also has a last value of 10,002,146,597.7 and a 7-day percentage change of +0.57%. 

The Buy/Sell ratio of 0.3622628 to 0.6377372 indicates that more traders are selling than buying. The liquidation data shows that 2,328,879.34 long positions were liquidated in the last 24 hours, compared to 804,601.93 short positions.  

Contrary to the rising open interest, the trading volume associated with Bitcoin futures has experienced a downward trajectory over the past seven months. The trading volumes for BTC futures have dropped to their lowest levels since December 2022, averaging below $7 billion daily. This decline suggests a shift in focus or a protective stance by traders at current price levels.

The derivatives data paints a nuanced picture of the current state of the crypto market. On one hand, the dominance of long positions in the funding rate and the increase in Open Interest suggest underlying bullish sentiment and potential for further price growth.

On the other hand, the growing selling sentiment, significant liquidation of long positions, and declining trading volumes hint at caution and potential uncertainty.

Conclusion

Bitcoin’s response to US CPI data shows a complex relationship between traditional and digital economies. The mixed signals from derivatives data, the strategic embrace of Bitcoin by companies like MicroStrategy, and the broader macroeconomic context all contribute to a complex and nuanced landscape.

The underlying bullish sentiment, as evidenced by the dominance of long positions and significant corporations’ strategic adoption of Bitcoin, suggests a potential upward price movement. However, the caution in selling sentiment and declining trading volumes cannot be ignored.

Potential Targets: Based on the derivatives data and market analysis, the following potential targets can be considered:

Bullish Scenario: If the market continues to build on the bullish sentiment and corporate adoption trends, Bitcoin could reach  $35,000 to $40,000 in the medium term.

Bearish Scenario: If selling pressure continues to build and macroeconomic concerns weigh heavily on the market, Bitcoin might retest support levels around $28,000 to $26,000.

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Filed under: Bitcoin - @ August 13, 2023 11:45 am