Bitcoin (BTC) may end up falling to as low as $ 30,000 if US inflation data to be released on Wednesday is higher than anticipated, warns Alex Krüger, founder of Aike Capital, an asset management firm. based in New York.
The market expects the widely followed consumer price index (CPI) to rise 7.1% in the year to December and 0.4% month-over-month. This increase highlights why officials at the US Federal Reserve have been encouraging a faster normalization of their monetary policy than previously anticipated.
A normalizing job market further supports their readiness, including an increase in earnings and a drop in jobless claims, according to data released Jan.7.
“Crypto assets are at the far end of the risk curve,” tweeted Krüger on Sunday, adding that since They had benefited from the Fed’s “extraordinarily loose monetary policy”, it should suffice to say that they would suffer if an “unexpectedly tighter” policy shifted money into safer asset classes.
“Bitcoin is now a macro asset that is traded as a proxy for liquidity conditions. As liquidity declines, the macro players now in the fray sell bitcoin, and the entire crypto space follows.”
The first interest rate hike in March 2022?
The Fed has been buying $ 80 billion worth of government bonds and $ 40 billion of mortgage-backed securities every month since March 2020. Meanwhile, the US central bank has held its rates. benchmark interest close to zero, which makes loans to individuals and businesses cheaper.
But the collateral damage of loose monetary policy is higher inflation, which reached 6.8% in November 2021, the highest in nearly four decades.
So now the Fed, which once claimed that the rise in consumer prices is “transitory” changed its stance from not expecting rate hikes in 2022 to discussing three hikes along with normalizing its balance sheet.
“It’s more dramatic than we anticipated and the Fed’s turn to a more aggressive stance has come as a surprise,” Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, told CNBC, adding:
“Most market participants were expecting higher rates, less accommodative monetary policy, but when you look at federal funds implying a 90% chance of an increase in March, on New Years Eve, that was only 63 % “.
Mini bear market?
Mike McGlone, the senior commodities strategist at Bloomberg Intelligence, called $ 40,000 an important level of support in the Bitcoin market. Furthermore, he anticipated that the cryptocurrency would eventually emerge from its bearish phase as the world goes digital and treats BTC as collateral.
The statement came as Bitcoin’s slide from its Nov. 8 record of $ 69,000 is now over 40%. According to Eric Ervin, CEO of Blockforce Capital, the drop has mostly wiped out recent investors, leaving the market with long-term holders.
It could be the beginning of a “mini bear market,” the executive told Bloomberg, adding that such corrections are “completely normal” for crypto investors.
Krüger also pointed out that Bitcoin has already fallen too far from its all-time highs, to the extent that it is now technically oversold. Therefore, If the CPI reading surprises to the downside, the markets could expect the price of BTC to rise and trend for a while.
“On Wednesday we will have inflation data from the United States,” Krüger said, adding:
“I think prices should cut around 41,000 and 44,000 until then, with an upward bias given how strong the rejection of the lows has been.”
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