Bitcoin cowers below $22k ahead of crucial CPI report

The January US inflation release due later today may trigger yet another big move across risk assets, including cryptocurrencies.

Here are the market forecasts for this key CPI (consumer price index, which measures headline inflation) data out of the world’s largest economy:

• 6.2% rise last month compared to January 2022 (year-on-year);
  lower than December’s 6.5% year-on-year increase
   
• 0.5% rise last month compared to December 2022 (month-on-month);
  a resurgence from December’s 0.1% month-on-month contraction

 

This could drag Bitcoin back into sub-$21k territory: Higher-than-expected CPI that ramps up expectations for the more Fed rate hikes.

On the other hand, this might trigger another run towards the $24k mark for Bitcoin: Further evidence that US inflationary pressures are sticking with their downward trend that revive bets that the Fed can afford to soon pause with its rate hikes.

Note how Bitcoin has dropped a leg lower since our last weekly crypto article, falling 4.8% on February 9^th following hawkish comments from key Fed officials:

• New York Fed President John Williams and Fed Governor Lisa Cook spoke of the need to reach a policy stance that’s “sufficiently restrictive”.
   
• Fed Governor Christopher Waller warned of the prospects of interest rates staying “higher for longer”.
   
• Minneapolis Fed President Neel Kashkari says the Fed “has to do more”.

 

Such commentary pointed to more Fed rate hikes in store, prompting slight adjustments for an even higher-than-expected peak for US interest rates.

And risk assets in general, including cryptos, cower at the prospects of US interest rates moving even higher.

As has been often warned in this article published on Tuesdays …

The biggest risk to the crypto sector right now is the Fed’s ambitions to incur some damage in the US labour market so as to subdue inflationary pressures.

• (Feb 7^th): From a macro fundamental perspective, the biggest difference between the 2020 and 2021 Bitcoin bull runs and today is this: the Fed has been hiking interest rates aggressively in 2022, with more rate hikes in store.
   
• (Jan 31): Overall, arguably the single-biggest factor that’s most likely to influence Bitcoin’s next big move would be the Fed, and what it conveys to investors and traders worldwide about its intentions for US interest rates this year.
   
• (Jan 24^th): Ultimately, broader market sentiment has to remain conducive for such risk-taking activities in this corner of the crypto world, amid plenty of worries still featuring on the market’s outlook including recession fears and uncertainty over the Fed’s policy outlook.

 

Given that the Fed’s hawkish chorus came out in full force last week, no surprise for how these riskier assets each suffered three consecutive days (Feb 8-10) of declines going into last weekend:

1. Bitcoin fell by 7.15%
    
2. Bloomberg Galaxy Crypto Index shed 7%
    
3. The tech-laden Nasdaq 100 lost 3.3%

 

The listed price action above just underscores crypto’s sensitivity to the outlook for US interest rates.

 

However, for the sturdy crypto aficionado, there could be some solace to be found.

Despite the recent drop, Bitcoin seems to have stabilised just south of the $22,000 border, compared to the mid-January price range when Bitcoin coalesced around the psychologically-important $21k mark.

The longer Bitcoin can find a firmer footing around these levels without stooping to a lower low, then potentially the stronger the platform that Bitcoin can explore higher heights.