How BTC and ETH could react

Will the release of US CPI data signal a new era of monetary easing and how could this influence investments in bitcoin and ethereum?

bitcoin (btc) and ethereum (eth) have been on a roller coaster ride. Last week, btc fell by over 8% in a matter of hours, hitting $53,600, when the defunct Mt. Gox began moving large amounts of btc to the Japan-based exchange bitBank to refund customers.

This week, after recovering from the Mt. Gox refund saga and the German government’s btc sell-off, btc is now trading at $57,084 as of July 12, despite a slight 2.3% drop over the past 24 hours.

Meanwhile, eth has seen a surge, trading at $3,150, marking a gain of 1.78% in the same period.

Amidst this, the cryptocurrency market is now on edge, waiting for the next major trigger – the US Consumer Price Index (CPI) data, due out today.

These data are crucial because they reflect the cost of living in the world's largest economy. Data from Dow Jones predicts a 0.1% month-on-month increase in June, after May showed no change, leading to a 3.1% year-on-year increase.

Meanwhile, the core CPI, which excludes volatile food and energy prices, is expected to rise 0.2% from June and 3.4% from the start of the year.

If these figures align with expectations, they would indicate continued progress toward the Federal Reserve's 2% inflation target, potentially paving the way for this year's long-awaited rate-cutting cycle.

It is worth noting that the inflation rate has largely fallen from its peak of 9.1% in 2022, but the Fed remains cautious and needs to see more consistent progress before cutting interest rates.

At the same time, the response of the US Treasury yield curve to the expected soft CPI release could also play a key role in shaping market sentiment, including the cryptocurrency market.

The fall in long-term US Treasury bond yields has state a critical factor, and any new turn in this trend could impact financial markets and affect cryptocurrencies.

With all these developments, let’s dive into what the market expects, what experts expect, and how the cryptocurrency market might react to these triggers.

<h2 class="wp-block-heading" id="market-expectations-and-potential-crypto-market-direction”>Market expectations and potential direction of the cryptocurrency market

Earlier this week, Federal Reserve Chairman Jerome Powell delivered Semi-annual Monetary Policy Report. In his remarks, Powell suggested that it would not be appropriate to cut the policy rate until there was greater confidence that inflation was heading sustainably toward the 2% target.

He also noted a cooling of recent labor market data. Despite these remarks, Powell's comments did not alter market expectations for a possible Fed rate cut in September.

Meanwhile, at the 2024 Australian Conference of Economists, US Federal Reserve Governor Lisa Cook Discussed The monetary policy response to the pandemic and the current inflationary environment. Cook stressed that the data supports possible rate cuts by the Fed, in line with the approaches of other central banks.

He noted: “My baseline forecast (and that of many outside observers) is that inflation will continue to move toward target over time, with unemployment continuing to rise much further.”

In this context, the CME FedWatch tool sample an 84% chance of a 25 basis point (bp) rate cut on September 18, with another rate cut expected in December, in line with market expectations of a decline in CPI inflation data.

So what does this mean for cryptocurrency markets? The potential for rate cuts generally favors risk assets, including cryptocurrencies. Lower interest rates make borrowing cheaper, prompting investors to seek higher returns in riskier assets.

For example, if CPI data confirms that inflation continues to decline, this could boost confidence in the Federal Reserve’s monetary easing. This could increase demand for btc and other cryptocurrencies as investors look for assets that offer better returns than traditional savings accounts or low-yielding bonds.

According to the latest data from Statista, the yield on a ten-year US government bond was 4.2%, while that on a two-year bond was 4.67%, indicating an inverted yield curve where longer-maturity bonds offer lower yields. In such scenarios, investors often turn to riskier assets like btc or eth, anticipating long-term gains.

However, any deviation from expected data could increase volatility. Higher-than-expected inflation could dampen hopes for a rate cut, leading to a temporary drop in cryptocurrency prices as investors reassessed their strategies.

What to expect in the coming days?

As the market eagerly awaits the latest US CPI data, two prominent cryptocurrency analysts have shared their thoughts on what lies ahead for the cryptocurrency market.

An analyst tweeted about bitcoin and the Wyckoff reaccumulation model, referencing a chart shared a week ago. This technical analysis framework suggests that after a consolidation phase, the price of an asset could rise.

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Drawing parallels with bitcoin’s current pattern, the analyst predicts that btc could soon break above $60,000 again.

Meanwhile, Michaël van de Poppe, another well-known cryptocurrency analyst, noted that bitcoin recently broke through a crucial resistance level. However, he suggested that for btc to gain momentum, it needs to break above the $60,000 mark.

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Van de Poppe also highlighted the upcoming CPI data as a critical factor in the market, suggesting that its release could greatly influence bitcoin’s price action.

Combining these insights, the data suggests a possible upward move, with the $60,000 resistance level acting as a key threshold for momentum.

It is crucial to keep a close eye on the release of CPI data. If the data indicates continued progress towards the Fed’s inflation target, it could boost confidence in a potential rate cut, which would positively impact risk assets like btc.

Always conduct thorough research and consider seeking advice from financial professionals before making any moves in the cryptocurrency market.